The Harvard Law School Program on Corporate Governance recently issued The Elusive Quest for Global Governance Standards, a discussion paper I co-authored with Professor Assaf Hamdani. The paper is scheduled for publication in the University of Pennsylvania Law Review. Our slides from a recent presentation of the paper at the Sloan Foundation corporate governance research conference are available here.

We focus in our paper on the substantial efforts by researchers and shareholder advisers to develop metrics for assessing the governance of public companies around the world. These important and influential efforts, we argue, suffer from a basic shortcoming. The impact of many key governance arrangements depends considerably on companies’ ownership structure: measures that protect outside investors in a company without a controlling shareholder are often irrelevant or even harmful when it comes to investor protection in companies with a controlling shareholder, and vice versa. Consequently, governance metrics that purport to apply to companies regardless of ownership structure are bound to miss the mark with respect to one or both types of firms. In particular, we show that the influential metrics used extensively by scholars and shareholder advisers to assess governance arrangements around the world—the Corporate Governance Quotient (CGQ), the Anti-Director Rights Index, and the Anti-Self-Dealing Index—are inadequate for this purpose.

We argue that, going forward, the quest for global governance standards should be replaced by an effort to develop and implement separate methodologies for assessing governance in companies with and without a controlling shareholder. We also identify the key features that these separate methodologies should include, and discuss how to apply such methodologies in either country-level or firm-level comparisons. Our analysis has wide-ranging implications for corporate-governance research and practice.

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Here is a more detailed description of the paper: There is now widespread recognition that adequate investor protection can substantially affect not only the value of public firms and their performance but also the development of capital markets and the growth of the economy as a whole. This view has naturally led to heightened interest in identifying and bringing about corporate-governance improvements at both firm- and countrywide levels. These developments also have sparked substantial demand for reliable metrics for evaluating the quality of corporate governance in public firms. And both academic researchers and shareholder advisers have made considerable efforts to develop such metrics.

The notion of a single set of criteria to evaluate the governance of firms around the world is undoubtedly appealing. Both investors and public firms are, after all, operating in increasingly integrated global capital markets. Our paper argues, however, that the quest for a single, global governance metric is misguided.

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