Risk, regulation and blame

I've read two interesting articles this week. One by Gillian Tett in the FT: "A thicket of laws strangling the land of the free?" and one by Alex Edmans in economia, on Kodak.

Alex argues that Kodak's demise is an example of poor corporate governance because good corporate governance should not only focus on preventing egregious behaviour with regard to management rewards but also on the promotion of proactive innovation, which is where Kodak failed.

This reminded me that I had once written about the tension between enterprise and accountability. I find it a slightly worrying experience to reread things I wrote a long time ago. It's not a very good paper although it's interesting to see how much of it prefigures thinking that I developed in later publications. And I was surprised that it had gathered some quite recent citations, given that the corporate governance literature has expanded so much in the twenty years since I wrote it. But the point that I think I made and that Alex makes more cogently is the importance of balance in corporate governance and the need to think carefully about the impact of regulatory policy on long term value creation objectives.

Gillian Tett's article explores the increasing development of rules and bureaucracy and by implication its impact on innovation. She comments that "..the surplus of modern rules and bureaucracy has not emerged by accident: on the contrary, it reflects a mixture of powerful vested interests and (sometimes) well-meaning efforts to protect consumers and workers from exploitation." This prompted me to reflect on the management of risk and its use as a means of placing blame, which her article does not mention as a motive for regulation and which Mike Page and I discussed in our paper "Risk management: the reinvention of internal control and the changing role of internal audit" - another paper written about twenty years ago which stands up rather better to the test of time judging by its citation history.

Gillian Tett mentions the work of anthropologist David Graeber; we drew on the work of another anthropologist, Mary Douglas. There is much to be said for interdisciplinary approaches which can enable different perspectives on corporate governance and can raise broader issues for policy consideration beyond a focus on regulatory compliance.