Book review of Corporate Governance 3.0: impressive breadth and insight

Corporate Governance 3.0: An international perspective on modern governance and three levels of history and maturity

by Karl George , Simon Osborne , and Prof Dr Alexander Van de Putte, PhD, FCG CDir FIoD, NACD Fellow and Cyber CERT, SID-SRAD

“The success of a business is inextricably linked to its impacts on people, planet and the economy, and how its purpose translates into positive outcomes in relation to the UN Sustainable Development Goals (SDGs).”

The authors trace the development of governance through three stages, and project forward to the characteristics of what the fourth stage might look like. They posit that Corporate Governance 1.0 roughly comprised the period from the 1970s until the Cadbury Report in 1992, in which the successful operation of governance was held back by dominance hierarchy. Corporate Governance 2.0 from the early 1990s until about 2010 saw changes in board composition, with the application of governance principles being held back by corporate scandals and failures (including both the dot-com bubble as well as the Global Financial Crisis). The current period of Corporate Governance 3.0 began in the early 2000s, in which governance has taken advantage of new technology, new ways of collaborative working, and increasing boardroom diversity… There is an excellent three-page summary of these phases from pages 370-372.

There is a powerful foreword from Mervyn King that: anticipates the International Sustainability Standards Board; endorses Integrated Reporting; and decries the box-ticking madness of prescriptive mandates for governance inputs. King argues that outcomes are much more relevant and important for corporate governance… This is reinforced by the WEF Davos Manifesto’s focus on “shared and sustained value creation” across all stakeholders of a company. The book emphasises a shift in corporate governance from protection/compliance towards organisational performance/sustainability.

Overall, the authors make the “case that corporate governance 4.0 is emerging where company directors will have to consider building inclusive, sustainable and more resilient businesses for the benefit of humanity, not just the shareholder and in the short term.”

Culture and behaviour will always be a key part of good governance: “Companies with healthy cultures have a risk-aware culture. The characteristics of a risk-aware culture include risk management devolved to the workplace, participative management style, utilisation of knowledge and skills of employees at all levels of the organisation, good communication and teamwork.” Chair of the Committee for Standards in Public Life writes: “How decisions are made – in the public interest – is ultimately what the 7 Principles of Public Life are about. Honesty, Integrity, Accountability, Objectivity, Openness, Selflessness and Leadership are the values that those serving in public, in whatever capacity, should demonstrate.”

On AI and the governance of technology, those people “with an “explorer” mentality – the creative, ethical, strategic and lateral thinkers with emotional intelligence and strong social skills mentioned above – are really well-placed to influence and steer those conversations for the greater good of global society”.

In 2018, the UK Government commissioned an expert group chaired by James Wates to develop a set of governance principles for large private companies: purpose and leadership; board composition; board responsibilities; opportunities and risk; remuneration; stakeholder relationships and engagement. These are subject to an “apply and explain” approach, rather than “if not, why not” as for the ASX Corporate Governance Principles and Recommendations.

There is an excellent chapter on the Australian corporate governance landscape from Julie Garland McLellan , and on Asian family businesses from Dr. Ser-Keng Ang as well as Alexander Van de Putte.

The book does have a focus on the UK, along with plenty of good coverage of other countries. The chapters are a little disjointed, but the total product is impressive and insightful. At 400 pages this is a weighty read, and does require quite a lot of effort.

I can highly recommend this book for people with a serious interest in corporate governance, it contains a number of pioneering perspectives and serves as an invaluable reference.