August 5, 2017

Responsible corporate governance

A Skeptical View of Financialized Corporate Governance

Corporate governance practices need to improve, though the approach to fix it is still a work in progress. The last recession gave us multiple examples of irresponsible corporate governance, but few actions have been taken to reverse the trend. A recent article shows how this misallocation of risk and resources should be addressed:
Effective governance requires that those in control are accountable for actions they take. However, those who control and benefit most from corporations' success are often able to avoid accountability. The history of corporate governance includes a parade of scandals and crises that have caused significant harm. After each, most key individuals tend to minimize their own culpability. Common claims from executives, boards of directors, auditors, rating agencies, politicians, and regulators include "we just didn't know," "we couldn't have predicted," or "it was just a few bad apples." Economists, as well, may react to corporate scandals and crises with their own version of "we just didn't know," as their models had ruled out certain possibilities. Effective governance of institutions in the private and public sectors should make it much more difficult for individuals in these institutions to get away with claiming that harm was out of their control when in reality they had encouraged or enabled harmful misconduct, and ought to have taken action to prevent it.
 Public and private organizations are affected and these are the author's "skeptical" suggestions:
The key to improving corporate governance is to increase transparency, create better internal and external control and accountability, and address distortions and inefficiencies through effective laws and regulations.
Society should demand such change, though laws in regulations are not enough. As Foucault reminds us from roman culture, infamia is a crucial measure. Nowadays,  power and money through the media are able to stop infamia too often.