Philadelphia partner Doug Raymond authored an article in Directors & Boards titled “The Pros and Cons of Good Governance.” In this article, Doug considers whether strong corporate governance is worth the effort.
Some argue that strong governance produces inconclusive market returns, is costly and can dampen the entrepreneurial spirit and that the requirements for good governance can be extensive, intrusive and expensive.
Despite the costs, good governance has notable advantages. A well-functioning board can help management keep an appropriate sense of perspective and is invaluable in a crisis, when crucial decisions must be made on short notice and gut reactions are often wrong or inadequate. In addition, good governance sends a strong signal to investors, regulators, employees and other constituencies that it values fairness, careful deliberation and building consensus before acting.
Doug advises that boards should engage in a thoughtful dialogue with management and other important constituencies to determine how best to ensure effective board governance in their particular circumstances. This good governance will lay the groundwork for meaningful and effective decisions by those running the business and can mitigate downside risks.