Friday, March 13, 2009

Corporate reforms

Leave aside the big talk of 'reforming capitalism'. That means all things to all people. Concretely, what can one expect by way of reforms in the corporate world? From a recent story in the FT, I flagged the following:
  • The US Congress has voted to give shareholders an annual vote on executive pay, although this will be a non-binding vote
  • Shareholders may get the right to nominate candidates to the board- and to remove non-performing directors. These have been management's prerogative so far
  • Redesign of executive compensation with less liberal stock options for people at the top.
  • An improvement in the composition of corporate boards- board members will need to demonstrate better expertise than playing golf.
Is that good enough? Well, it's a good start. But I am a bit of a radical when it comes to corporate reform. I happen to think there is a fundamental problem with the modern corporation: excessive concentration of powers in the CEO.

The world over, democracy has gained ground at the level of nations. But the corporate world remains the last bastion of dictatorship. Greater diffusion of powers and more participative decision-making are what companies lack - and which is why they are prone to disaster. Serious reform is making these things happen.

2 comments:

theghostwhotalks said...

Democracy in the workplace is what Ricardo Semler has been preaching for quite some time.

Harshal @ Snehapadma said...

Democracy in corporate can reduce the speed at which corporates can make decisions.

I think absolute transparency in the affairs of companies is the peel that one needs to take. Like RTI, this can make executives more responsible and accountable in their acts.

These days, when every transaction is recorded in information systems, that should not carry a big impact on the day-to-day affairs of the company.