109. Good financial performance is not the same as good governance

I don't care how good your financial performance is...it doesn't mean you have good governance.

Background music is Of the Stars by KC Roberts & the Live Revolution

 

SCRIPT:

Corporate governance evolves *slowly*. Even in a single boardroom, real governance change tends to happen at a glacial pace, but on a system level…man. Seriously, every single little change to regulation – however, toothless or insignificant – gets treated like some kind of revolution, and then the real-world impact is basically nothing more than symbolic, or maybe a tiny addition to public disclosure. Perhaps the most frustrating example of things that take forever to change is the insistence among many corporate leaders that as long as an organization is performing well, it must have “good governance.” I agree to a tiiiny extent, in the sense that if you observe performance over a long enough period, say 20 years, then a corporation with great performance is unlikely to have awful governance. Right? A failure to make effective decisions for 20 years would only lead to amazing long-term performance with extraordinary luck? As for short- and medium-term performance, anyone who insists that they are useful indicators of good governance can go fly a kite, if you know what I mean. Let’s think of some governance disasters – oh right, we listed some a few episodes ago: Enron, Theranos, etc. and others we didn’t mention like Wells Fargo or Boeing – you know what most governance catastrophes have in common? The catastrophe is revealed in the wake of AMAZING financial performance. Think of the Financial Crisis – basically the culmination of a thousand awful decisions by a thousand corporations, all performing EXTREMELY well! Nah, financial performance is not the same as good governance.