The issue of corporate governance is a symptom of a much bigger problem: the way executive managers/directors relate to their shareholder/owners.


Many/most listed companies claim they conform with ASX's Governance Principles - yet how often is their rhetoric actually checked for accuracy and effectiveness.

Just as it is possible to build a concrete life vest while being quality-accredited, so it is possible to have the corporation harm shareholders - even when complying with all Governance Principles. Therefore, Corporate Governance in and of itself is not "enough".

In the context of corporate activity, governance as an issue, pales into insignificance compared to the billions of dollars of shareholder funds wasted through managerial subjectivity, incompetence, poor judgement, ill conceived pursuit of guru theories, pursuit of executive managers’ (and directors and chairpeople) personal agenda, misguided assumptions and inadequate corporate oversight and accountability. All of that despite management’s generally "honest" endeavours “to do the right thing” and generallly all within the context of "reasonable" governance practices.

As long as directors and managers are free to define the outcomes of the organisation they manage, then shareholders will nearly always come off second or even third or fourth best.

Managers decide the projects that the corporation invests in, the initiatives they will undertake, the markets they will play in, the tools they will use, the philosophies they will adopt, and the corporation’s remuneration policy. Management also determines how resources will be applied, what the organisation will generate, what benefit the owners of the business will secure, if any, and how they themselves will get paid. They determine the performance criteria against which they will be assessed and by which they will be rewarded.

And these business costs are costs carried by owners and the business risk is also largely carried by owners. They are not costs or risks carried by management who initiate those costs and risks.

This stems from a belief that the corporation, because of its legal status, is a separate entity from its owners i.e. the Social Entity view of the corporation.

This view argues that only managers and directors can determine corporate objectives.

Instead, directors and managers must understand that, despite the legal status of the corporation, they are nevertheless agents of the owners – and not the owners themselves.

Managers must apply their efforts toward the optimisation of shareholder objectives – that is their job and that is what they are paid to do – and that is the fundamental purpose of the corporation.

Critically, ONLY by knowing its shareholder objectives (i.e. its metrics – value, benefit, growth and risk), can an organisation align its activities toward their fulfilment.

Corporations currently make assumptions about their shareholder objectives that are demonstrably, logically and intuitively wrong.

As examples of such erroneous assumptions, my research has found that:

• All shareholders do not have the same objectives

• A shareholder may have different objectives for different investments

• Institutions are not a proxy for small investors

• Management assumes it knows what it is that shareholders want and they act on that assumption – but they don’t know without asking – and no one asks.

• Shareholders cannot run the company but they can and should define its outcomes: i.e. board interpreted shareholder metrics based on value, benefit, growth and risk – and what they want becomes the corporation’s Mission.

If you don’t fix and realign the relationship between the corporation and its shareholders, then tweaking governance will make little difference to the business owners and may lull them into a false sense of security. Ultimately,

Governance is all about process and nothing about outcomes.