Good Corporate Governance: A Lesson in how NOT to Make the Headlines

You don’t have to look far to find Corporate Governance failures. They appear in news headlines all too frequently. Feature films are made about them, best-selling books are written on the back of them. They have it all: high financial stakes, risk-it-all tales of morality and fraud. Think back to the Enron scandal in 2001, and the subsequent book and film which followed hot on its heels, aptly titled, ‘The Smartest Guys in the Room’ and the more recent Theranos case, currently in the news because of the Silicon Valley lawsuit against the former CEO, Elizabeth Holmes. These true crime sagas never fail to captivate our imagination and demonstrate a clear failure of Corporate Governance.

Good corporate governance on the other hand, should lead to improving the transparency of information. It should create more accountability of boards with respect to the functioning of the company, and more protection and influence of shareholders. But, corporate governance can be defined in various ways, and there is not a generally agreed purpose.

In most cases, there isn’t a neatly captured Hollywood version of events where good triumphs over evil. Real corporate governance problems are complex and demand a multi-disciplinary approach. This is why Corporate Governance is, alongside Financial Management and Management Accounting, one of the three main topics of MaastrichtMBA’s module on Corporate Finance and Accounting. The module improves the participants’ theoretical knowledge and practical skills in the field of corporate governance.

In essence corporate governance is about exercising power over corporations. Dr. Rogier Deumes, Assistant Professor in corporate governance, control and auditing at the School of Business and Economics, explains the definition and purpose of corporate governance. “In a broad sense, corporate governance is about the exercise of power over corporations with the aim of increasing the value provided to the organisation’s various stakeholders. The latter include providers of finance, but also other stakeholders like employees, suppliers, and customers.” Deumes continues: “In the broadest sense, society at large is a stakeholder of a corporation. Viewed in this way, corporate governance is important for everybody. Yet not everybody has a direct say when it comes to major decisions taken by corporations.”

What if we look at corporate governance in a more narrow sense? According to Deumes, “corporate governance relates to the ways in which the suppliers of finance assure themselves of getting a return on their investment. This is important for a well-functioning capital market. To complicate matters, different groups of stakeholders, including finance providers, often value different things, or they value things over a different time horizon. This does not mean that the interests of stakeholders always differ, or that they differ in all respects, but to some extent interests differ.”

Hence, corporations cannot always please everyone. Also, within groups of stakeholders different interests can exist, and not everyone has the same information. “Once the problem is clear from various perspectives, you need to assess what different solutions mean for different stakeholders. More importantly, you need to decide what matters most. What do you value? This is of course subjective, so opinions will differ. Real corporate governance issues are debatable”, explains Deumes.