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    Heskett Column: What's the Future of Corporate Governance? (SUM UP)

     
    7/30/2001

    Future Corporate Governance: Different, But More Effective?

    Shann Turnbull suggests that the world of corporate governance will benefit from the establishment of "a new type of corporate information and control architecture."

    Speculation on the future of corporate governance in response to last month's column suggests both a conclusion and a question: It will be different, but will it be more effective?

    First, the differences. Corporate governance in the future will, according to Devdip Ganguli, reflect an increasing emphasis on customer satisfaction as a way of measuring the adaptability of the organization over time. As he put it, "By focusing too strongly on financial records (and audit committee work), we lose sight of the fact that departments like operations and human resources are very important components (in forecasting future success). (Phrases in parentheses are mine.)

    Shann Turnbull suggests that the world of corporate governance will benefit from the establishment of "a new type of corporate information and control architecture." In fact, he goes beyond this to propose that a network of more specialized board groups and "advisory stakeholder councils" comprising employees, lead customers, suppliers, and others offers a useful solution to the governance vacuum that exists in many large corporations today.

    Not so fast, says Gopi Vaddi. While agreeing that "customer and employee satisfaction and loyalty are indeed good predictors for (the) future success of a company," he suggests that these measures have to be viewed with a long-term lens, one that accommodates the fact in the short-run, managements may take actions to reduce costs and the size of the labor force to achieve long-term success—actions that could adversely affect non-financial indicators used as inputs for corporate governance.

    Vaddi provides a list of questions that need to be answered if a "public" balanced scorecard of non-financial information is to be created. "Who will perform the audit? What are the guidelines? Who pays for it? Should there be an independent firm that is appointed by the SEC?"

    What do you think?

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