How the phrase ‘corporate governance’ arose

 

Bob Tricker

I have been studying corporate governance for over 50 years, long before the subject acquired its name. My first research report was published as The Independent Director (Tolley,1978), which studied the structures and processes of the governing bodies of British stock exchange listed companies. I found that British boards were dominated by executive directors.  Although outside non-executive directors were considered useful for giving advice. But such non-executive directors, it was believed, should never be in a majority on the board. Moreover, the concept of independent outside directors, familiar in the US, was unknown in the UK. Audit committees with independent directors, required by the Securities and Exchange Commission (SEC) in the US for many years, were not feasible.

My second study followed five years research at Nuffield College Oxford and was published in 1984, by Gower Press, as Corporate Governance, the first book with that title.  This work distinguished governance from management which, in the latter part of the 20th century, was the primary focus of business schools in both America and Britain.

My research at Nuffield College followed a decade as Director of the Oxford Centre for Management Studies throughout the 1970s, which had made me realize that governance was different from management. The Management Centre was a company limited by guarantee, closely associated with Oxford University but not formally part of it.

The Council was made up half of senior Oxford academics, including two college heads, and half of influential company chairmen and business leaders. The Council had more members than the teaching staff.  The Chairman of the Council was Sir Norman Chester, the Warden of Nuffield College. The problem was that the board members, both the businessmen and the Oxford academics alike, had no experience of management education, they did not know the subject, they were unaware of the market, and ignorant of the competition: whereas the Director and Fellows, who did know, were subject to the whims of that governing body.

Moreover, I soon realized that members of the Council often acted personally and politically in Council meetings, sometimes with prejudice and personal animosity. This was not the analytical and rational management decision making we were teaching in the Management Centre.

Eventually, Chester was replaced as Chairman by a businessman, Clifford Barclay, who had also been the Management Centre’s initial benefactor. He did not agree with the existing strategy of focusing the Centre’s work on small numbers of top management. He wanted the focus to be on middle management, so he fired me. I had given up a tenured professorship at Warwick University to take on the Management Centre’s Directorship. But ‘every man has his price,’ Barclay told me.  Mine was the five-year research fellowship at Nuffield College to research whatever I wanted, with a tiny teaching commitment and no administration – an opportunity seldom available at the professorial level.

 

Governance is not management

It occurred to me that the behaviour of the directors at the Management Centre was probably seen in other board rooms. Clearly, this was not management. It involved the exercise of power. It was a personal and political process. I called the process ‘corporate governance.’  Corporate governance involved formulating strategy, setting policy, supervising management (but not managing), and being accountable overall. Management runs the enterprise, but the governing body, typically called the board of directors, ensures that it is being run well and in the right direction.

My research fellowship provided the opportunity to explore this issue in depth. I formed a trust, called the Corporate Policy Group, as a focus for the project. In retrospect, I should have called it the Corporate Governance Group, but the phrase ‘corporate governance’ was not then in use and the concept was not understood. When I had contributed the management topics to Alan Bullock’s Dictionary of Modern Thought in 1977, there was an entry for ‘management; and ‘corporate strategy’ but none for ‘corporate governance.’ It would be different today.

The Corporate Policy Group was based at Nuffield College and ran for the five years of my Research Fellowship from 1979 to 1983. The Group had no researchers, other than me, but quickly became a network of scholars, company chairmen, CEOs, and directors, auditors, lawyers, and others interested in the field. The focus was on board structures and processes, the roles of executive and non-executive directors, the reality of strategy formulation, as well as corporate regulation and accountability. Such matters are commonplace today, but then corporate governance codes, compliance reports, and the other paraphernalia of modern corporate governance did not exist.

The initial approach I adopted involved the exploration of the frontiers of knowledge on the topics, discussions with board chairs and other directors, round-table discussions with directors from different companies, and seminars and conferences. We invited Harold Williams, Chairman of the Securities and Exchange Commission from Washington, who gave an American perspective on corporate regulation. Another conference, run with the Anglo-German Foundation, looked at the German experience of co-determination and two-tier supervisory boards with worker directors.

As the project progressed, I developed two research exercises about the structure and style of boards, and about management and governance relationships between holding companies and their subsidiaries, which provided the basis for the book – Corporate Governance.  The main findings were, firstly, that there were many opportunities to improve effectiveness at board level. Secondly, the way companies operated no longer reflected the underlying nineteenth-century legal model of the corporation.

 

On the phrase ‘corporate governance’

One evening, at dinner at Nuffield high table, a guest sitting opposite asked what I did. I said I had just written a book. Silly really, because so had nearly everyone else at that table.

‘Really, what is it about?’ he asked politely.

‘Corporate governance,’ I said.

‘You mean corporate government?’

‘No, I checked the meaning – it’s about corporate governance.’

‘Good Lord,’ he responded, ‘that word has hardly been used since the time of Chaucer.’

Turned out he was a visiting Professor of English language. Although he was not entirely correct: I had written a report in 1982 titled The Governance of the Institute (of Chartered Accountants in England and Wales) and Harold Wilson, British Prime Minister (1916–1995) had written ‘The Governance of Britain in 1977’. But that was about the governance of a country not a company. The visiting professor was right about Chaucer, he did coin the word governance, although he couldn’t quite decide how to spell it (gouernance, or governaunce).

 

This note has been adapted from the book Oxford Circus – the story of Oxford University and Management Education, Bob Tricker (2015) from Amazon or through www.BobTricker.com