The limits of “good” governance:

Confession of the former chairman of SNC-Lavalin

In an opinion piece in the Globe and Mail of July 26th, 2013, Mr. Gwyn Morgan, the former chair of the board of SNC-Lavalin gives us his take on what happened there and offers some suggestions to improve corporate governance. The gist of his piece bears on how hard-working and diligent were the chairman and the board members after they were informed of malversation by some members of management.

His explanation of why the board could not prevent the abuses at SNC-Lavalin rests on two axioms from the playbook of “good” corporate governance:

• “Non-executive directors are not involved in day-to-day operations of the company. They must rely on information received from people within the company. When a small number of people deliberately set out to falsify documents, commit bribery and cover up theft, it can be exceedingly difficult to detect…”
• “One of the most widely accepted corporate governance principles is the clear separation of the role of board members from that of management.” Boards must trust management to be…trust-worthy and let management manage.

After some 15 years of tweaking and polishing the theory and practice of “good” governance, board members, through no fault or inadequacy on their part, remain surprise-prone, dimly aware of various goings-on in the company, poorly informed and lacking the wherewithal to challenge management. In the current form of governance, corporate directors are somewhat akin to skaters making intricate arabesques on a frozen lake, largely unaware of the teeming life underneath […] Read more