In a recent Harvard Business Review article, Guhan Subramanian asserts that the current system of corporate governance was borne of patchwork policy and regulation – created by consequences, not intentional design. As a result, our current system of governance can be ineffective, allowing unintended outcomes that subvert common sense and public policy.
Guhan suggests a “back-to-the-basics” approach to create effective corporate governance based on three principles:
1. End the culture of short-termism. Financial performance is not just a quarter-over-quarter, year-over-year endeavor. Boards should have the right to manage the company for the long term.
2. Develop More Qualified Director-level Talent. Boards should install mechanisms to ensure the best possible people in the boardroom.
3. Improve Shareholder-Board-Management Communication. Shareholders should have an “orderly” voice.
In an upcoming post, I’ll look ahead to what gaps still exist and how Berkshire Hathaway’s governance system sets the bar for others to follow; and what other improvements can create higher levels of #AlignedValue.
About the Author
Guhan Subramanian is the Joseph Flom Professor of Law and Business at Harvard Law School, the H. Douglas Weaver Professor of Business Law at Harvard Business School, and a director of LKQ Corporation, a Fortune 500 company in the automotive sector. He has been involved as an expert witness or an adviser in some of the situations described in this article.