A few days ago I posted that:
Thirteen (an auspicious or suspicious number?) top CEOs published a joint statement on what they called Commonsense Corporate Governance Principles as a full page ad in today's Wall Street Journal (and perhaps elsewhere). It was reprinted by CNBC here.
These principles have gotten considerable press, but I was skeptical:
So what do we have? A mixed bag, it seems. Some feel good platitudes. Some commonsense. And some pure bunkum.
In the NY Times DealBook, attorney Michael W. Peregrine comments on the principles that:
Sensible they may be, but they are not, as some academics suggest, mere platitudes.
I assume I'm "some academics." So let's see what arguments Mr. Peregrine brings to the fray:
His first argument is an appeal to authority:
The principles were prepared by a diverse group of 12 prominent corporate executives and other financial leaders, including the chief executives of JPMorgan Chase, Berkshire Hathaway, General Electric, General Motors and Verizon as well as those of BlackRock, Vanguard and other institutional investors and financial services companies. It is an all-star lineup that should command broad boardroom attention.
The trouble, of course, is that appeal to authority is a logical fallacy. Even assuming the authors are authorities on corporate governance (which, given the shoddy governance at some of their own companies is hardly an assumption worth making), that doesn't mean their recommendations are necessarily true or valid:
An argument from authority (Latin: argumentum ad verecundiam), also called an appeal to authority, is a logical fallacy that argues that a position is true or more likely to be true because an authority or authorities agree with it.
Carl Sagan wrote of arguments from authority:
"One of the great commandments of science is, 'Mistrust arguments from authority.'...Too many such arguments have proved too painfully wrong. Authorities must prove their contentions like everybody else."
Here's his next claim:
... the principles appear premised on the crucial, if understated, connection between effective corporate governance and economic prosperity.
But where is the evidence for this connection? None is cited. In fact, "The link between corporate governance and economic growth is tenuous." Brett H. McDonnell, Professor Bainbridge and the Arrowian Moment: A Review of the New Corporate Governance in Theory and Practice, 34 Del. J. Corp. L. 139, 183 (2009). See also Bruce E. Aronson, Reconsidering the Importance of Law in Japanese Corporate Governance: Evidence from the Daiwa Bank Shareholder Derivative Case, 36 Cornell Int'l L.J. 11, 54 (2003) (stating that "there is no clear evidence linking corporate governance with economic performance"); John W. Cioffi, 52 Am. J. Comp. L. 770, 773 (2004) (stating that "the evidence shows a very complex and variable impact of corporate governance regimes on economic performance at the levels of the firm and the national economy").
As one proceeds through Pergrine's article one finds several paragraphs containing no citation of evidence but rather simply descriptions of the proposals embedded in glowing approbation.
And then one comes to this claim:
... the principles are likely to add fuel to growing efforts to support — if not mandate — diversity standards for governance. These are, individually and collectively, unique contributions.
There are two argumentative moves buried in that text: (1) the efforts to support diversity on boards is good and (2) therefore the principles must also be good. The trouble is that even the SEC can't define what we mean when we talk about board diversity (see this post) and there is no consensus that the business case has been made for board diversity. See Lissa L. Broome, John M. Conley, Kimberly D. Krawiec, Dangerous Categories: Narratives of Corporate Board Diversity, 89 N.C. L. Rev. 759, 765 (2011) (stating that "the empirical literature on corporate board diversity also yields largely inconclusive results").
Peregrine makes a similar move in the next paragraph.
But the principles also reflect some missed opportunities — important governance topics that arguably deserve note. ... They do not address the growing movement toward assuring the general counsel a prominent position within the senior leadership team, or acknowledge the oft-referenced role of the general counsel as “lawyer-statesman.”
Granted, there has been some movement towards this conception of the general counsel's role. There is the implicit, or so it seems, this is a good thing. But where is the evidence? If one digs into the literature, one finds important cautionary lessons, such as that advanced by my friend and colleague Sung Hui Kim, who argues that:
[One can] understand why inside lawyers acquiesce in fraud by combining insights from decades of social scientific research on the causes of unethical behavior with known facts about inside lawyers' roles inside the corporation. Combining these insights and facts allows us to construct and analyze the “ethical ecology” of inside counsel. As I argued, this ethical ecology emerges from the *1871 multiple roles that inside lawyers inhabit. These roles, in turn, unleash psychological pressures that strongly affect the actions and choices of inside lawyers. In simplified terms, inside counsel act as “mere employees” subject to obedience pressures, as “faithful agents” subject to alignment pressures, and as “team players” subject to conformity pressures.
And then the rest of the article consists of descriptions buried in adulatory commentary.
In sum, what Peregrine offers is mostly platitudes about platitudes.