The House of Cards of Corporate Governance: Re-Thinking Transparency and Disclosure of Ownership

Lex Research Topics in Corporate Law & Economics Working Paper No. 2016-1

42 Pages Posted: 12 Feb 2016

See all articles by Mark Fenwick

Mark Fenwick

Kyushu University - Graduate School of Law

Erik P. M. Vermeulen

Tilburg University - Department of Business Law; Signify (formerly known as Philips Lighting) - Legal Department; Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI); Kyushu University - Graduate School of Law

Date Written: February 12, 2016

Abstract

The entire architecture of contemporary corporate governance is reminiscent of a house of cards. This particular metaphor invokes two ideas that are important for understanding the current state of the debate surrounding corporate governance. Firstly, it captures the fragile facade of corporate governance today. There is no doubt that a house of cards is impressive, but the removal of one card reveals the fundamental weakness of the whole structure. Beneath the impressive outward facade of contemporary corporate governance, there are similar structural weaknesses.

Secondly, the metaphor of a house of cards alludes to the recent Netflix TV show and the Machiavellian intrigues that surround the power-hungry Democratic congressman, and later President, Francis "Frank" Underwood, as portrayed by Kevin Spacey. His self-serving machinations seem designed to expose the gap between the glossy image and base reality of contemporary US politics. The pertinent point in this context is the way in which the discourse and practice of contemporary corporate governance contributes to the creation of a similar false reality surrounding business regulation.

In order to clarify the metaphor in more detail, this paper focuses on the issues of "disclosure, transparency and ownership" as examples of how the current framework is broken. The problems with the current approach to transparency and ownership - namely more rules leading to a "one-size-fits-all" approach, herd behavior and standardization - are illustrative of some more general problems with the contemporary regulation of corporate governance. But rather than simply diagnose the problem with the existing framework, this paper develops an alternative regulatory approach that is more likely to be effective. The paper begins by reviewing contemporary discussion on ownership and control (II-III), before discussing the results of an extensive empirical survey of the annual reports of 280 companies in fourteen jurisdictions (IV) and introducing an alternative disclosure model for "new generation firms" (V-VI).

Keywords: agency costs, beneficial ownership, communication, disclosure, corporate governance, flat hierarchy, inclusiveness, innovation, theory of the firm, value creation

JEL Classification: D21, D22, D82, E22, G18, G32, K22, L22, M14, O16

Suggested Citation

Fenwick, Mark and Vermeulen, Erik P.M., The House of Cards of Corporate Governance: Re-Thinking Transparency and Disclosure of Ownership (February 12, 2016). Lex Research Topics in Corporate Law & Economics Working Paper No. 2016-1. Available at SSRN: https://ssrn.com/abstract=2731628 or http://dx.doi.org/10.2139/ssrn.2731628

Mark Fenwick

Kyushu University - Graduate School of Law ( email )

6-19-1 Hakozaki,
Fukuoka
Japan

Erik P.M. Vermeulen (Contact Author)

Tilburg University - Department of Business Law ( email )

Signify (formerly known as Philips Lighting) - Legal Department ( email )

Amstelplein 2
Amsterdam
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Kyushu University - Graduate School of Law ( email )

6-19-1, Hakozaki, Higashiku
Fukuoka, 812-8581
Japan

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