The New Corporate Governance of Today’s Successful Companies

Most successful companies share several characteristics. In particular, they focus on building and maintaining relevance in a digitized and networked marketplace. This requires them to design and re-design their products or services to constantly improve consumer satisfaction. In order to achieve this goal, the most competitive companies embrace what can be thought of as unmediated and technology-driven corporate governance.

The leaders of these companies understand that we are moving from a centralized to a decentralized, unmediated, and interconnected world; from a world of vertical hierarchies to one of horizontal, open, and autonomous networks. This transition was initiated and is increasingly accelerated by rapid technological developments, including social media, blockchain-based smart contracts, decentralized autonomous organizations, Big Data, and artificial intelligence.

The unmediated corporate governance practices include flatter organizational structures in which the best idea wins; more open and transparent communication that aims to build trust; and new approaches to corporate leadership and – in particular – the role of the board of directors.

As we explain in our recent paper, such unmediated governance has several benefits.

First, removing layers within an organization offers a better, faster, and more effective way for top management to receive relevant input and feedback from the market. This information helps management plan for the future. As a result, the overall dynamism and quality of decision-making is substantially enhanced, equipping companies with the best chance of success.

Second, unmediated corporate communications, through social media and otherwise, help create and maintain a culture of trust, honesty, and openness. They  (1) aim for transparency and relevancy, (2) personalize, humanize, and tell a distinctive story, (3) convey an unmediated and unpolished vision, (4) address difficult issues and encourage employees to care, (5) create a sense of leadership, (6) generate buzz, (6) promote best practices and a commitment to review such practices, (7) build relationships and invite input, and (8) communicate in a more colloquial manner.

Third, successful companies recognize that a monitoring role for the board is no longer enough and that the board should also receive feedback on company initiatives in the form of unmediated and relevant input from the market. The most successful companies have on their boards a range of directors who assist management by providing unmediated and relevant input from the market.. We call such directors “feedback providers.” Feedback is essential to company operations and regulatory compliance.

Although some firms have struggled to maintain the unmediated governance model (think of Uber’s recent difficulties), the flat and open corporate governance practices that are described in our paper are a creative response to the growth in new technology. What is surprising, however, is that these practices expose a disconnect between the existing corporate governance discussion and the governance realities of today’s most successful companies.

This post comes to us from Professor Mark Fenwick at Kyushu University’s  Graduate School of Law, Professor Wulf Kaal at the University of St. Thomas School of Law, and Professor Erik Vermeulen at Tilburg University’s Department of Business Law. It is based on their recent paper, “The ‘Unmediated’ And ‘Tech-Driven’ Corporate Governance of Today’s Winning Companies,” available here.

 

 

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