The Future of Corporate Governance
Stewart C. Myers, Robert C. Merton (1970) Professor of Financial Economics,; MIT Sloan School of Management ; William F. Pounds, Professor Emeritus of Management; Dean Emeritus, MIT Sloan ; Adam Emmerich, Partner, Wachtell, Lipton, Rosen & Katz
Description: While they won't directly address headline-grabbing corporate swindles (Enron! Tyco! WorldCom!), these speakers are well aware of the turmoil roiling away in boardrooms these days. William Pounds, long an insider within the top tiers of corporate life, makes a case that improving governance means having "the most appropriate and effective chief executive officer in place in every corporation." All the things we're concerned about, "integrity, transparency, high quality professional performance," will fall into place if the right person occupies this central role. And don't count on regulations and hard work by committees "to protect shareholders and employees from disappointment if the wrong person sits on top," says Pounds. But the process of attracting the best candidate, the job of corporate boards, is tricky. Plus, says Pounds, we don't really understand how boards work as organizations, so establishing best practices for recruiting and evaluating CEOs will require some serious research and data collection _ a good assignment for business students.
In Adam Emmerich's very long view, which begins as early as the British East India Company, today's business scandals represent mere bumps in the road for corporate governance. The modern corporation got its start in the 17th century, according to Emmerich, and the key notions of corporate governance have been in place since around 1911. There's "an economic logic to corporate organization," he says, which makes it a "very good system," and one that's been very stable. The most recent changes in governance emerged as reaction to the takeover wave of the 1980s, when courts compelled boards to take a more active and restraining role with CEOs. And the Sarbanes-Oxley law accelerates the trend of more active boards. But, wonders Emmerich, "does the enhanced degree of interaction between a board and CEO lead to a more effective CEO? Currently, the zeitgeist says we're not worried about an effective CEO but about a dishonest CEO." Emmerich conjectures that greater board activism might lead to less efficient public companies. He also notes a corollary trend of activism among large shareholders, including, hedge fund managers, and he perceives the possibility for conflicts of interest.
Host(s): Sloan School of Management, MIT Sloan School of Management
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