I’m a governance nerd. I really believe that corporate governance is important, that it makes a difference, and that there is such a thing as good governance – though I don’t believe that one size fits all.
So it troubles me that in governance, as in life, virtue is usually not its own reward. In fact, no one seems to care about governance unless and until performance deteriorates.
I was reminded of this the other day when reading a story about an investigation by New York Attorney General Schneiderman of governance practices at Cooper Union, a venerated educational institution in New York. It seems that Cooper Union, whose mission is to provide free education, started charging tuition last year because of poor financial condition. (As an aside, Cooper Union’s major asset is the Chrysler Building in New York City – yes, THAT Chrysler Building, which to me and many others is the most beautiful skyscraper ever built.) The story says that the investigation “has signaled that the laissez-faire approach to nonprofit governance is over.” In other words, as long as performance was OK, no one cared about governance. Or so it seems.
Another story made the same point a couple of months ago, albeit in different circumstances, when an institutional shareholder announced that it had submitted a proposal to separate the positions of CEO and board chair at a major company. In the article, the proponent seemed to be saying that the proposal hadn’t been necessary before because the company had been performing well. Now I’m no advocate of CEO/board chair separation, but if you believe that having an independent, non-executive board chair is critical (which the proponent clearly believed), why should it make a difference that the company had been performing well?
And just the other day, an executive told me that while his company doesn’t have Grade A governance, it doesn’t hear anything on the subject from investors because it’s had year after year of improved performance.
So the question is out there: does governance matter? What do you think?