The Promise of Governance Theory: beyond codes and best practices¹

Corporate governance exists for one reason and one reason alone: to ensure that shareholders’ values, as informed by knowledgeable agency, are transformed into company performance. To the extent a board fails in this, no matter how many other useful things it accomplishes, it has failed. To the extent it succeeds in this, no matter that it accomplishes nothing else, it has succeeded. The worldwide surge of corporate governance codes, while acting to protect investors, does little to enhance the integrity and effectiveness of the governance process itself. Significant improvement in boards’ ability to fulfil their roles as shareholders’ agents requires going beyond the codes and today's best practices to develop conceptually coherent governance theory.