David F. Larcker is James Irvin Miller Professor of Accounting at Stanford Graduate School of Business and Brian Tayan is a Researcher with the Corporate Governance Research Initiative at Stanford Graduate School of Business. This post is based on their recent paper. Related research from the Program on Corporate Governance includes What Matters in Corporate Governance? by Lucian Bebchuk, Alma Cohen, and Allen Ferrell and The Elusive Quest for Global Governance Standards by Lucian Bebchuk and Assaf Hamdani.
We recently published a paper on SSRN (“Loosey-Goosey Governance: Four Misunderstood Terms in Corporate Governance”) that examines four central concepts that are widely discussed—even foundational to the problem—but loosely defined and poorly understood.
A reliable corporate governance system is considered to be an important requirement for the long-term success of a company. Unfortunately, after decades of research, we still do not have a clear understanding of the factors that make a governance system effective. Our understanding of governance suffers from two problems. The first problem is the tendency to overgeneralize across companies—to advocate common solutions without regard to size, industry, or geography and without understanding how situational differences influence correct choices. The second problem is the tendency to refer to central concepts or terminology without first defining them. That is, concepts are loosely referred to without a clear understanding of the premises, evidence or implications of what is being discussed. We call this “loosey goosey governance.”
