Corporate governance and management - a blurred boundary?

A Twitter conversation reminded me that I have never got round to writing a coherent summary of the invited presentation (podcast here) that I gave at last year's MARG conference at LSE. I think I mentioned in passing that preparing it was a bit of a struggle because I found it difficult to make a clear connection between management accounting and corporate governance, the topic of the conference.

What I *really* wanted to say was that management accountants seem these days to be in search of a raison d'être and it looked as if they were now clutching at the notion of corporate governance. This was the conclusion I had come to when reading the CIMA/IFAC invention of enterprise governance, which classifies corporate governance as conformance and "business governance", whatever that is, as performance. (The model is derived without acknowledgement from the model developed by Bob Tricker, twenty years earlier: I probably should have made that point more strongly but Bob is in my slides.) But that might have been a bit rude, given the audience, so I watered it down a bit and discussed the relationship between governance and management, rather than management accounting.

And I probably talked a bit too much about the history of NEDs but the book was not long completed and I was in the middle of interviewing NEDs so they were at the forefront of my mind. But I do think that the restructure of corporate boards has had two consequences which have not so far been discussed by academics, regulators or practitioners.

Firstly, as boards have become smaller and predominantly non-executive, most executives have been squeezed out on to an executive board. The structure that has evolved is effectively two tier which is interesting, because objectors to the creation of audit committees at the time of the Cadbury Committee report argued that they would undermine the unitary board structure, which they viewed as a Very Bad Thing. (Difficult to know why this was seen as so important for UK companies, other than the fact that two tier boards were common in continental Europe...)  And the main link between the main board and the executive board is... the CEO. Now, wasn't the whole thrust of corporate governance focused originally on constraining the power of the CEO? Hm.

Secondly, these disenfranchised executives seem to be claiming links to corporate governance by coupling their functional areas with governance, in meaningless combinations - marketing governance, sales governance, IT governance, HR governance, even financial governance. On examination, all of these misuse the word governance: they are concerned with management.

Does this blurring of meaning matter? I still haven't made up my mind. What do you think?

Stopping reading, starting analysing...

My plan to cut back on my reading has been quite successful but logging in to Google Scholar yesterday I found that it had a couple of suggestions for me to look at. Big mistake. I found myself reading an article which made me sigh.

The authors have developed a typology for analysing the quality of "comply or explain" reporting. All well and good: everyone these days wants to develop a typology. It's rather like years ago when we all wanted our own two-by-two matrix: I remember being very excited when I managed this when studying internal auditors' views of risk management. But...there is already a very good paper on the same topic which develops a taxonomy.

What is the difference between a taxonomy and a typology in the context of social science? I have always understood a taxonomy to reflect hierarchical arrangements whereas a typology just groups things together on the basis of characteristics rather than relationships.

Anyway, the authors do recognise the other paper and make some attempt to explain why their approach is different but if I'd been reviewing the paper I would have asked for a more detailed explanation.

But the source of my irritation is more fundamental. The authors note that there is a very limited literature on comply or explain, thus justifying their contribution. But does this matter? The intention of the Cadbury Committee in recommending comply or explain in the Code of Best Practice was to initiate conversations between investors and companies. Nowhere in the paper is the view of investors mentioned: the whole focus is on regulation and enforcement. Regulators have to justify their existence: that they call for improved disclosure quality is inevitable. But investors seeking information about corporate governance don't rely solely on published reports: they have other information sources. If they are unhappy about the quality of disclosures, let them pursue this directly with companies, exercising voice or exit.

Rather than sitting at their desks, churning out sterile analyses of explanations of non-compliance, academics could make a greater contribution by finding out what investors think and what difference such explanations make in practice. Much more of a challenge to get suitable data, of course, but surely much more valuable in assessing the practical effects of the comply or explain requirement.

That was a brief diversion and my reading is now focused on storytelling which is considerably more interesting. I have returned to interview data collected a decade ago, using a new perspective which I think may generate a third paper from the data. I have been planning to do this for some time but have been waiting for a Mac version of MAXQDA, software that I have used in the past. Finally this has appeared and I have downloaded a free demo version. I wonder if I can get all the coding done before the 30 days run out!