I am sorry to be the bearer of bad news but it’s true. Corporate Governance as we know it is dead. Gone. Pfffft. As 2010 comes to a close, we must all come to terms with the fact that this old clunker has seen its day. Its rusted hood ornament and fins are of a bygone era, an artifact of another time.
Not to be confused with its evil twin, that mutant beast on a short corporate leash also euphemistically referred to as “corporate governance,” this latter day zombie is a corrupt, tired and wholly irrelevant concept that has no value in today’s world of investing.
Perhaps an explanation is in order. The corporate governance I refer to was once an important, vital tool for holding corporations accountable to their shareholders. Executives were threatened by the concept. Uttering the words corporate governance was akin to dissing one’s mother at the country club.
In its heyday, corporate governance was an effective weapon for reigning in corporate excess, challenging management on a range of issues and a platform for debating important issues effecting shareholder value and stakeholders as a whole. In the late 1980s, the Council of Institutional Investors was but a seed of an idea in the head of California’s State Treasurer, Jess Unruh. JP Stevens, a textile manufacturer was facing unruly mobs of shareholders at its annual meeting because of its abhorrent labor practices. Multinational corporations were called to account for their complicity in Apartheid South Africa. Corporate Governance was in its infancy. Things changed.
The 1990s saw Corporate Governance maturing a bit. Some of the youthful exuberance remained but there was a bit of seriousness injected into its core. CalPERS, the largest pension fund in the U.S. got on the bandwagon, waging battles in annual meetings and boardrooms across corporate America. The nascent idea that executive pay should somehow be tied to corporate performance was bravely advocated. Corporate Governance was now in its adolescent years.
The 21st century arrived and Corporate Governance was in full swing. Barrel-chested, dapper and full of itself, Corporate Governance had come into its own. “Adults” were referring to corporate governance in the same sentence as shareholder returns, valuations and other big and important investment terms. Ominously, executives and corporate lawyers were using the language of Corporate Governance in conversations about the public enterprise. Institutes were formed at major Universities, international conferences were held and Corporate Governance became a profession. Middle age had set in but a mid-life crisis was looming.
In the mid-2000s, the Corporate Governance binge was on. A new beast, the hedge fund, and its drunken cousin, the private equity fund, had embraced Corporate Governance not as a good in and of itself but as a means to an end, in this case profit maximization. Even more disturbing was the embrace of Corporate Governance by the governed – corporate executives and their ilk. Yes, NAMBLA had merged with Mothers Against Child Abuse.
Corporate Governance has begun a period of self-evaluation. One indicator of this is the recent spate of mergers in the proxy adviser world. ISS goes through its seemingly endless series of mergers and acquisitions. MSCI, now stuck with a minimally profitable enterprise is no doubt wondering how to offload this doddering venture. Governance Metrics merged with the Corporate Library. Recent reports have announced the acquisition of Proxy Governance by Glass Lewis. Each of these events speaks to the unspoken fact that there is little money to be made in the proxy advisory world. CalPERS is refocusing its governance work in a way that suggests that its adventures over the last two decades is winding down.
More importantly, the arcane discussions about executive pay, director responsibility and risk are proving to be ever more irrelevant in a world concerned about the influence of the corporate enterprise on society and the environment. Corporate Governance as a tool for addressing these problems has lost its edge. While these discussions remain important to the initiated, its backward-looking approach and its failure to influence the ills of global corporate conduct speaks to its ultimate irrelevance.
Like all things once good, Corporate Governance has seen its day. Now I’m off to get my shovel before things start to smell.