The disfunction of “exemplary” corporate governance


May 17, 2013 by Tamara Piety

There was a great little piece the other day over at The Conglomerate about the observations of Colin Mayer, the former dean of the Said Business School at Oxford about what is wrong with shareholder-oriented governance. He argues that as “exemplary” as this system may be, “[t]he downside [is that] it systematically extinguishes any sense of commitment — of investors to companies, of executives to employees, of employees to firms, of firms to their investors, of firms to communities, or of this generation to any subsequent or past one. It is a transactional island in which you are as good as your last deal, as farsighted as the next deal, admired for what you can get away with, and condemned for what you confess.”

Yet, the economies and the societies in the UK and the US, he notes have problems that would seem to belie their “exemplary” corporate governance structure that is supposed to lead to great over all welfare. “It is as if the most ardent followers of lifestyle, nutrition, and well-being prescriptions suffer the most chronic symptoms of ill-health and depression. And it is as if, in response, we encourage them to follow those recommendations even more closely and not allow them for one moment to question the infallible judgment of the experts. They should, in other words, flog themselves until they feel better.”

Instead of following economists’ prescriptions for “improving social welfare” is  to recommend “Enhancing choice, competition, and liquidity,” Mayer says we should recognize that, “Where economics errs is in failing to recognize our dependence on others to assist us, and the dependence of their willingness to do so on our commitment to them. It is not that contracts could not be written or terms of our mutual assistance agreed, it is simply that if we are not committed to abide by them, they are of no significance”

Mayer argues that corporations are failing us because they systematically discourage commitment. I tend to agree. You can read the whole blog here on the Harvard Business Review blog. You can take a look at his book from Oxford University Press “Firm Commitment” here.


One thought on “The disfunction of “exemplary” corporate governance

  1. […] my last post I discussed a new book, Firm Commitment, from the former dean of the Said Business School at Oxford, […]

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