"I can calculate the orbit of celestial bodies, but not the madness of people."
Sir Isaac Newton, 1721
The corporate world has always been creative in creating governance tools and fads that supposedly signify advances in management, but which serve to generate revenue for consultants and create more internal bureaucracy in companies. Not everything should be discarded - and I recognize that there have been advances in transparency in the management of corporate accounts, but what strikes me is the misuse of management.
The primary objective of a private company in a capitalist economy is to generate value for its shareholders. This is the company's ultimate activity, without which its existence is not sustainable. Of course, the company also has a social function, as it pays taxes, creates jobs, impacts the environment and acts locally in the society in which it is incorporated - see article Review of Leniency Agreements. However, this social role does not alter the company's core business, which is to make a profit and generate value for its shareholders. As you know, profit comes from a simple mathematical equation, where revenue must exceed expenses.
Well, as companies have become more complex, management tools and company control models have been created. The curious thing is that these new tools usually appear in response to a major corporate crisis, rather than out of an organic need for management. Thus, after the Watergate event, the FCPA appeared in the US, the purpose of which was to combat corruption by US companies abroad, but which is now known to be a tool for US political interference in the world's main economic sectors. In response to the Enron accounting scandal, the Sarbanes-Oxley Act was passed to combat financial fraud in large American organizations. And so on, with the emergence of compliance, board support committees, the figure of the independent board member and, more recently, the ESG agenda.
In their original concept, these tools seek to add something to the company's processes, but in reality, they add little to the company's core business.
On the contrary, they are just expenses, costs and, more often than not, management obstacles. They make companies cumbersome, bureaucratic and lack the dynamism needed to keep up with the speed of today's market. They are defensive, reactive tools with little added value to the company's core business. They are born as a "necessity" in the business environment, disguised as a one-off diagnostic and control project with outsourced activity and a manager in charge. This manager, co-opted by the possibility of promotion, concludes that there is a need to internalize control and transform this one-off project into a department under his leadership, with dozens of employees under his command and now promoted to director. From then on, this new control department reports directly to the board of directors, aiming for "greater transparency and independence", which, because it doesn't have the necessary knowledge to manage this new tool, creates its own advisory committee. As a result, the one-off outsourced control project now has hundreds of employees to carry out a function that doesn't generate a cent of revenue for the company. The cost of this new department in large companies is well into the tens of millions.
The most curious thing is that in the face of this new tool suddenly created by the market, countless "experts" on the subject appear with a professorial air, calmly discussing a subject that didn't exist the previous year. A tremendous contradiction. This is a real opportunity for artificial intelligence to clean up this antinomy.
The independent director of the board of directors is another curious figure in today's corporate world.
Billed as an impartial voice in management and therefore free from any conflict of interest, in practice this director almost never makes any real contribution to the company's operational or strategic needs. Their actions are generally guided by a protective agenda, seeking to surround themselves with immunity in the board's decisions. It avoids taking risks, not because it disagrees with the merits of the decision on the table, but so as not to expose itself to future legal contingencies. Therefore, he is not seeking loyalty to the company, but to himself. I've seen absurd situations in which the independent director has his own lawyer to protect his position on the board. Now, if the individual is not sure about being a member of a company's board of directors, then he should step down.
To the poets on duty, I'll say straight away that I'm not advocating an end to controls in the company. I advocate transparency, but not delegating decisions to control bodies. Nowadays it's common to hear that "compliance doesn't allow a certain operation, or the hiring of certain individuals or companies". What do you mean compliance doesn't allow it? This is a lack of management.
In a company, decisions are made by the board of directors, or in some cases the general assembly. The lack of strong and capable leaders makes the company subservient to self-protective control tools. This is the fault of weak and unfocused managers.