How have the concepts of corporate governance evolved, and are they fit for purpose in this disruptive era?
In this episode, joining podcast host Michael Kitson, University Senior Lecturer in International Macroeconomics at Cambridge Judge Business School, are Cambridge Judge faculty Simon Learmount, Lecturer in Corporate Governance; Jennifer Howard-Grenville, Diageo Professor of Organisation Studies; and Shahzad (Shaz) Ansari, Professor of Strategy & Innovation.
This is the ninth in a series of “Cambridge Judge Business Debate” podcasts featuring faculty and others associated with Cambridge Judge Business School and the broader Cambridge community.
This latest podcast focuses on corporate governance – including the definition of corporate governance, geographical differences and the role of social media.
Here is an edited transcript of some of the podcast discussion:
How should corporations and other organisations be governed?
Michael Kitson: “We want our companies to be run well, but systems of corporate governance vary around the world, so what are the characteristics of an effective system of corporate governance?
Simon Learmount: “There are two different views of corporate governance. One is a very narrow view that corporate governance is about insuring that company managers and directors act in the best interest of the company’s owners, who are shareholders for listed companies. This narrow view has been superseded over the past 25 years by a much more inclusive, productive and relevant understanding of corporate governance. Nowadays the accepted definition is that it concerns the structures and processes by which organisations are directed and controlled. The latest UK corporate governance code says the purpose is to facilitate effective, entrepreneurial and prudent management to deliver the long-term success of an organisation. That’s a view that is more in touch with the needs and demands of society.”
Jennifer Howard-Grenville: “I love that the language says ‘effective, entrepreneurial and prudent’ – how many times do we put ‘entrepreneurial’ and ‘prudent’ together? It’s a natural struggle to say which of those two definitions of corporate governance is correct, as they’re in tension with each other. Corporate governance incorporates both shareholder and stakeholder interests, and sometimes they align.”
The challenges of corporate governance in volatile times
Michael Kitson: “We want our firms to behave better, but do they often revert to type and seek to maximise short-term profits? Are governments always playing catch up as businesses find new ways to achieve their prime objective, which may not be according to desirable corporate governance mechanisms?”
Shaz Ansari: “If you look at the sharing economy, firms like Uber and Airbnb, there’s always a regulatory lag and firms take advantage of this. It seems like the regulatory space is always struggling to keep pace with disruptive technologies.”
Jennifer Howard-Grenville: “The fact that firms are able to establish simultaneously in many countries and geographies around the world is unprecedented, the pace that this can happen. But it’s human nature to take advantage of a gap, to be opportunistic. Governments will, by definition, always be catching up. The fact that they do catch up is what’s important, because they may then reset the rules of the game and hold to account those who violate them.”
The role of social media in corporate governance
Michael Kitson: “When individuals or firms or organisations behave badly, the information is out there very, very quickly, so it’s difficult to hide. Better information may provide some oxygen for better governance.”
Simon Learmount: “You build up a network effect to bring pressure on people. Companies are having to deal with public opinion in ways they didn’t before.”
Different places, different faces of corporate governance and the role of governments
Simon Learmount: “What may work very well in the UK or the US doesn’t necessarily translate well. When international investors go off to other markets like Japan and China, they expect markets and corporate governance to work the same way, but they don’t.”
Shaz Ansari: “Even in France and Germany, the notion of the separation of directors from management and board members isn’t as distinct. Especially in Germany, with the Mittelstand, family businesses, there’s much more overlap. The role of government is also context dependent: if you’re a kingdom or an Emirate like the UAE, or China, the role of government is obviously going to be different, but in a country like the US there’s suspicion about interference, whether it’s Obamacare or gun control.”