Corporate Governance
by Kenneth Kim, John Nosfinger and Derek Mohr
ISBN: 978 0 13 609 698 6, Publisher: Pearson Education Inc. 2010
Reviewed by: Julie Garland McLellan*
This book is like the Starship Enterprise - it appears to go where no man has gone before. I was enchanted to follow.
The book is written for the serious student of governance. It assumes no prior knowledge and starts with a clear history of the development of modern governance theory. This is delivered in clear prose that is easily assimilated in one fast read. The focus is on the practical and philosophical reasons behind the legal structures that define modern governance. It makes a lot of sense.
From there the book leaps (at warp speed) to a really hot topic: executive compensation. The agency problem, perverse incentives and human behaviour are all analysed with refreshing brevity and lucidity. The deterrents to excessive risk taking are examined and, again, the focus on practical principles based action makes the text a pleasure to read.
Before tackling the board and directors the book passes through the orbit of the auditors and accountants who missed so many of the recent corporate disasters. The basic premises of accounting and the motivations of partners in audit firms are shown as useful but insufficient to provide a corporate control mechanism that investors can rely upon.
The role of the board is discussed in far greater breadth than in many USA publications and the authors have clearly taken time to consider the different models used around the world as well as the implications of each model for not-for-profit and unlisted boards. Alignment of interests is discussed and the potential problems with common board structures are acknowledged. The impact of regulation on board structures and the process for nominating and replacing directors is highlighted as key to good governance outcomes.
Then we head off into other galaxies; where corporate governance books rarely venture, to discuss the role of investment banks, analysts, credit ratings agencies, creditors, shareholders, competitors and takeover bidders in bringing discipline to directorship. The SEC and Sarbanes Oxley are also brought into the context of a wide ranging analysis of the complex relationships that entangle, support or obscure our corporate governance. The book looks at the systemic factors that underpin life as we know it. Then it debates how these factors could be used more effectively to bring about better outcomes for investors.
Finally the authors stop to consider corporate citizenship and stakeholder advocacy.
This is a breathtaking ride through the constellations by which boards and directors navigate their craft. The breadth of the field is not compensated by a loss of depth. The analyses are concise but comprehensive. Case studies enliven the material and the voices of three distinct authors are melded into a harmony so complete you can't tell who has written which piece. The whole has been rigorously edited to present the essentials of systemic governance. This book will please everyone from seasoned chairman to novice aspirant director. It may also perturb a few, currently peripheral, players by highlighting a bigger role for their expertise.
Don't be misled by my playful sci-fi analogy. This is a book with real technical merit. I hope it is a case of today's fiction becoming tomorrow's fact.
* Julie Garland McLellan is a professional non-executive director, board and governance consultant and mentor. She is the author of "Dilemmas, Dilemmas: practical case studies for company directors", "The Director's Dilemma", "All Above Board: Great Governance for the Government Sector" and numerous articles on corporate strategy and governance.
Julie Garland McLellan to judge 2011 Global eBook Awards