Does corporate governance matter?

It is assumed that corporate governance defines the health and performance of a company. How true is this? In the Economist, Schumpeter cites a recent study that casts doubt on this view;

The authors conducted a comprehensive study of the performance in 2007-08 of 296 financial institutions with assets of more than $10 billion. They found that none of the tenets of good corporate governance stood up to close examination. Directors who were well informed about finance performed no better than know-nothings. Companies that separated CEOs and chairmen did no better. Far from helping companies to weather the crisis, powerful institutional shareholders and independent directors did worse in terms of shareholder value. Indeed, the proportion of independent directors on the boards was inversely related to companies’ stock returns.

The authors of the study are quick to also point out that in East Asia, external monitoring has led
to better performance. So, maybe, one cannot generalise from banks?

Well, a good way to address the question of whether corporate governance matters is to ask whether management will do without boards at all? Is this desirable? Most people would think not. Some checks, however imperfect, are better than none.

Secondly, we have to look closely into the role and motivation of independent directors. In most cases,' independent' directors are selected by management. Management also pays them well in some cases. It's hard to see these directors taking their role seriously and challenging management. We need to find a different way to select independent directors. Even then, they may be co-opted by management. But it's worth trying something different.