My credentials: I am an investor by profession and have experience negotiating governance structures. I have been a director of 3 private companies and a trustee of 4 non-profits.
Governance is often not ideal. That’s because it is a weird confluence of fitting within the law (often modern laws layered over common laws that don’t make much sense today), relationships and negotiation. For example, you pose the question about whether unusual governance structures have been tried by companies. In general, they haven’t because they aren’t legally possible.
In terms of structuring like a democracy, I don’t think democracies deal well with technical and minor issues. I say “minor” issue because if everything is going well, people will probably not consider it important. It’s also impossible for future people to participate in today’s democracy by definition.
The final point I’d make is that time horizons are important here. Many organisations struggle to manage both the immediate term and the long-term in the same framework. Within a corporate, it is good organisational practice to divide those responsibilities to a certain extent.
On social choice theory, I think it’s important to distinguish between decisions that have to be made (typically handled by the executive, e.g. there needs to be a new Chair of the Federal Reserve) and decisions about changes (typically handled by the legislature, e.g. we could improve the law on bank regulation). Budgets typically require approval of the legislature, but are really something that has to happen (the status quo of the government having no money used to be a reasonable option but is not in the modern day).
Some minor comments on the piece:
I know you’ve tried to simplify things, but governance of for-profit corporations is a lot more complex than you make out. Board members are not as accountable to shareholders as you would expect, e.g. AGM votes often being non-binding, adoption of poison pills. There are also normally minority protections, e.g. takeover rules for public companies, investor vetoes in private companies. CEOs typically serve on the Board (which is different to non-profits), are sometimes also the Chair and can be the controlling shareholder, which adds a lot of additional dynamics. I think it’s also very important to consider not just the legal governance but the practical governance, e.g. the Chairman has significantly more influence than other board members even though they all have 1 vote each. Soft power is very important.
With non-profits, I have observed a significant difference between UK and US boards. UK boards are typically filled based on expertise, whereas many US board are filled with donors and fundraisers. This is not a legal difference, but does affect the dynamic a lot.
Non-profits can also have members that act a bit like shareholders. This is most common for membership organisations, e.g. sports clubs, mutual interest societies, but it’s also possible for non-profits to have another organisation as its sole member, i.e. a bit like a subsidiary.
This comment is really insightful. It is short but has a huge amount of content. It draws from experience, expertise and reality, maybe why it can be concise and still accurate. Thanks a lot.
My credentials: I am an investor by profession and have experience negotiating governance structures. I have been a director of 3 private companies and a trustee of 4 non-profits.
Governance is often not ideal. That’s because it is a weird confluence of fitting within the law (often modern laws layered over common laws that don’t make much sense today), relationships and negotiation. For example, you pose the question about whether unusual governance structures have been tried by companies. In general, they haven’t because they aren’t legally possible.
In terms of structuring like a democracy, I don’t think democracies deal well with technical and minor issues. I say “minor” issue because if everything is going well, people will probably not consider it important. It’s also impossible for future people to participate in today’s democracy by definition.
The final point I’d make is that time horizons are important here. Many organisations struggle to manage both the immediate term and the long-term in the same framework. Within a corporate, it is good organisational practice to divide those responsibilities to a certain extent.
On social choice theory, I think it’s important to distinguish between decisions that have to be made (typically handled by the executive, e.g. there needs to be a new Chair of the Federal Reserve) and decisions about changes (typically handled by the legislature, e.g. we could improve the law on bank regulation). Budgets typically require approval of the legislature, but are really something that has to happen (the status quo of the government having no money used to be a reasonable option but is not in the modern day).
Some minor comments on the piece:
I know you’ve tried to simplify things, but governance of for-profit corporations is a lot more complex than you make out. Board members are not as accountable to shareholders as you would expect, e.g. AGM votes often being non-binding, adoption of poison pills. There are also normally minority protections, e.g. takeover rules for public companies, investor vetoes in private companies. CEOs typically serve on the Board (which is different to non-profits), are sometimes also the Chair and can be the controlling shareholder, which adds a lot of additional dynamics. I think it’s also very important to consider not just the legal governance but the practical governance, e.g. the Chairman has significantly more influence than other board members even though they all have 1 vote each. Soft power is very important.
With non-profits, I have observed a significant difference between UK and US boards. UK boards are typically filled based on expertise, whereas many US board are filled with donors and fundraisers. This is not a legal difference, but does affect the dynamic a lot.
Non-profits can also have members that act a bit like shareholders. This is most common for membership organisations, e.g. sports clubs, mutual interest societies, but it’s also possible for non-profits to have another organisation as its sole member, i.e. a bit like a subsidiary.
This comment is really insightful. It is short but has a huge amount of content. It draws from experience, expertise and reality, maybe why it can be concise and still accurate. Thanks a lot.