Monday, February 5, 2018

Brave New World For Corporate Governance - Paul Pelosi Jr

The Corporate Governance Initiative (CGI) combines free market capitalism practices and transparency as a sweet formula to improve value, to narrow the gap of income inequality for corporations served and to respect the laws and local customs in the countries in which we do business.  As the CGI Executive Director, I encourage equitable and inclusive practices that balance the interests of all stakeholders.  

My experience confirms that implementing well-defined governance strategy for corporations is good business.  Well-defined governance means having an active Board of Directors enforcing self-governance practices while simultaneously focusing on fair dealings to maximize mutually beneficial transactions, increase transparency, and embrace tolerance of constructive criticism.

These observations regarding good governance seem logical and universally accepted; however, in practice, given human nature, those empowered with decision-making authority may depart from 'common sense' and act illogically. Illogical acts become more likely when the information used to make a decision is based exclusively on senior management's lens of experience and human tendency to act out of intuition, comfort, and emotion. Recent news present examples of the often illogical nature of corporate decision-making process and the disastrous consequences thereof.  See Michael Bernoff of the Human Communications Institute: Common sense isn’t common practice. 

In today's warp-speed world, there is an ever-narrowing margin of error in corporate governance as word of company missteps circulates like wildfire.  Advances in automation loom, threatening worker security, coupled with a growing gap in employee compensation, the sense that governments, corporations, and the business elite ignore public concern has snowballed, and many people feel left behind by this technological change.  We see this evidenced today by populist movements taking place worldwide demanding change.  In response to this growing anti-corporate sentiment, it is imperative that corporations adopt specific practices and strategies protecting their organizations from easily avoided missteps thus ensuring their respective ability to maintain the value and address current challenges.

Rather than relying solely upon laws and regulations with the hope of eliciting good corporate behavior, CGI proposes voluntary practices that balance equities to satisfy concerns.  Some leaders realize the pitfalls of current business trends and are implementing practices designed to restore confidence in capital markets and Main Street.  For example, business leaders including Warren Buffett, Jamie Dimon, Jeff Immelt, and others, wrote an open letter in July 2016 entitled, “Common Sense Corporate Governance Principles.”  Their letter emphasized that better a financial future for owners is dependent upon restoring public trust in corporations. 

Specifically, the letter highlighted the importance of having a Board of Directors committed to the importance of long-term strategies over short-term quarterly concerns.  This letter also stressed the vital importance of truly independent and diverse board members, a common accounting standard, and constructive engagement between companies and owners. 

While CGI finds the letter and its recommendations as a first step toward promoting healthier relationships with company insiders and higher stock prices, for corporations to maintain the value and a good reputation on Main Street will require more;  Meaning organizations need to take responsibility for improving transparency and actively cooperate with all stakeholders, not just shareholders.  Moreover, the CGI path to prosperity begins when leaders voluntary restore balance among all employees, tolerate and incorporate opposing views, and follow laws and local customs.

Thank you for your consideration. 

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