Twenty Five Years of Corporate Governance

A recent Business Week article by Julie Hembrock Daum looks at changes in corporate governance over the past 25 years. Coincidentally, I worked on my first securities fraud class action 25 years ago. In a way, the governance changes of the past 25 years are events that I have witnessed and sometimes been a part of in a very small way.

Twenty five years ago, we didn't even really hear the phrase "corporate governance." The Cadbury Report from 1992 defined the phrase as "the system by which companies are directed and controlled." Now, 25 years later, it's a phrase we even hear on the nightly news and we all know that poor corporate governance practices contribute to frauds and a lack of confidence in the securities markets.

Daum notes that there have been some really significant changes -- splitting the chairman and CEO roles, having fewer inside directors, higher retainers for directors and better succession planning practices. What hasn't changed? Women and minorities are still underrepresented on boards of directors. According to the article, the issue of representation of women and minorities wasn't even mentioned in the Spencer Stuart Board Index from 1986.

There have undoubtedly been many very good changes. Disclosure laws are stronger in almost every nation, succession planning is something in which most boards do engage on an annual basis and boards are better about evaluating their own performance and seeking to improve where necessary.