The Limitations of Corporate Governance Best Practices

This chapter identifies the limitations of what may commonly be accepted as “Best Practices” in Corporate Governance. Directors commonly obtain funds from venture capitalists and bankers by transferring to them some or all of their absolute powers that can corrupt themselves and their business. This provides evidence that the law, regulators, stock exchanges and corporate governance codes are irresponsible in allowing directors to possess corrupting powers, not required to increase profits, when firms becomes publicly traded. Neither common sense nor empirical evidence provides compelling evidence to support many existing practices and those advocated by numerous corporate governance codes. Many current practices are identified in this chapter as being: unethical, imposing risks for both directors and the firm as well as denying competitive advantages or consistency with the rationale for a market economy. Compelling reasons why existing practices are sub-optimal are revealed by the communication and control architecture found in living things that like firms must self-regulate to survive and grow in complex uncertain environments. The natural science of governance identifies: (a) why current practices can be counter productive; (b) how the need for codes can be eliminated; (c) how corporate law can be simplified; (d) how the size of regulators can be reduced while increasing their effectiveness; (e) how the interest of investors, stakeholders and the community can be protected, and (f) how the interventions by government in business can be reduced