Governance

Before Enron, Tyco and WorldCom, too few managers responsible for community and external relations saw corporate governance as an issue they should concern themselves with. Too dry and technical. Equally too many at board level saw issues such as the competence of directors, their appointment and remuneration as matters of internal concern, not wider social responsibility. Even now, some don't grasp the connection. One FTSE100 company secretary was recently heard to ponder what CSR had to do with his job - an understandable attitude, perhaps, if CSR is all that soft do-gooding stuff, nice when you can afford it, but essentially an irrelevance to the people really running the business.

Certainly, some governance issues do seem dry and technical: what constitutes independence; should the chairman come from outside; which board sub-committees must be majority independent; and so forth. But they raise profoundly important questions about how a company is best managed, and to what ultimate end. There is a real danger that changes on both sides of the Atlantic - driven by loss of public confidence - will result in more systems of control, risk avoidance and undue power given to independents who don't really understand what's going on in the business.

In that sense, those - like the Institute of Directors - who wrongly resist the call for greater accountability, nonetheless make a valid point. This whole debate should at heart be about performance, not probity. Governance mechanisms need to be tightened up and made more transparent, not to stop more Enron-style crookedness but to ensure companies are well managed and more successful at their primary social role - putting goods and services into the marketplace in the most efficient and effective way possible, complying with laws and behaving in ways that meet stakeholders' expectations.

Opting for the US-style, 'tick box' mentality would be a mistake. The better alternative is to set out the standards expected, leave maximum flexibility on how to achieve them, and then require full reporting. There's a parallel here with the debate about the future of CSR - government regulation and compliance, to stop wrong-doing, or a voluntarist approach based on encouraging high standards. In both debates, loss of public confidence and the breakdown of trust may mean it's too late to avoid the prescriptive approach.