67. Corporate Governance Science vs. Practice

SCRIPT Working at a University for 20 years – and focusing on the same subject (governance) for that whole time – I had countless conversations with brilliant faculty, staff, and executives about board effectiveness and why it matters (or doesn’t matter). Like many other topics, there is endless fodder for discussion and debate between the scientists and the practitioners. What’s interesting to me about governance, though, is that most of the science is an attempt to quantify – by looking at corporate performance, for example – the impact of human interactions that happen behind closed doors in a boardroom. So we look for proxies like the adoption of specific processes, structures, and practices – most of which we only learn about second hand through public filings like annual reports. And so if an academic study shows, for example, a causal relationship between the adoption of board evaluations and better share price performance, anyone who’s been in a boardroom will be, well, suspicious. One reason being that most board evaluations are pretty useless…a fact that would be impossible to observe from the outside. Plus, board evaluations, like any other single board practice, aren’t even intended to impact corporate performance directly. I’m not trying to reject science, but the theory and practice of governance are often hard to reconcile when every boardroom is its own social entity. This is why hearty discussion about academic research can be so valuable in boardrooms. Just reading a paper probably won’t make a lightbulb go off and revolutionize your board effectiveness, but what if you said “OK this may not completely resonate with us, but what can we take away from this study that might make our board just a little bit better?”