The Recurrent Crisis in Corporate Governance

In recent decades two crises have overtaken the American corporation--the loss of competitiveness in the 1980s and the loss of investor trust in the late 1990s. Both have in their time severely damaged the holdings of investors in whose interests the corporation operates. The first drove down share prices, below the inherent value of investor assets, as management ran the governance process for its own interests. The second artificially held share prices above asset values, in the aftermath of the stock market bubble, as management cashed out its shares just before bankruptcy. Both led to the question: where was corporate governance in general -- where were boards of directors when management was out of control?

The Recurrent Crisis in Corporate Governance by Paul MacAvoy and Ira Millstein (Palgrave Macmillan, 2003) proposes a new, responsive answer focusing on changes in corporate conduct, principally by putting the board of directors fully in charge of management. The authors' detailed analysis and critique of the past performance of governance imply reforms that involve three changes: in leadership, by a board chairman independent of management; in process, with new information flows to the board of directors; in responsibility, with the directors accountable for the results. All go far beyond current reforms, but are deemed necessary by the two distinguished authors who are long-term practitioners in the governance field.

Reprinted by permission of Palgrave Macmillan