Loosey-Goosey Governance

Loosey-Goosey Governance

By
David F. Larcker, Brian Tayan
Stanford Closer Look Series. Corporate Governance Research Initiative, October
2019

A reliable system of corporate governance is considered to be an important requirement for the long-term success of a company. Unfortunately, after decades of research, we still do not have a clear understanding of the factors that make a governance system effective. Our understanding of governance suffers from 1) a tendency to overgeneralize across companies and 2) a tendency to refer to central concepts without first defining them. In this Closer Look, we examine four central concepts that are widely discussed but poorly understood.

We ask:

  • Would the caliber of discussion improve, and consensus on solutions be realized, if the debate on corporate governance were less loosey-goosey?
  • Why can we still not answer the question of what makes good governance?
  • How can our understanding of board quality improve without betraying the confidential information that a board discusses?
  • Why is it difficult to answer the question of how much a CEO should be paid?
  • Are U.S. executives really short-term oriented in managing their companies?