Is Your Board Focused on Cookie-Cutter “Gold Standards”?

The best boards focus on solutions and structures tailored to their companies, ignoring cookie-cutter “gold standards.” In recent years, however, the norm has veered to a universal expectation that all boards should follow identical guidelines judged “best practices” or “gold standards.” A generation ago, the norm in corporate governance was to recognize differences among companies and the need to adapt governance to fit their needs. Why are boards now kowtowing to best practices and gold standards, and what does it mean for the future of corporate governance? Two major reasons are that specialists, who are more interested in what works for a particular company, are no longer in favor and generalists, who are interested in identifying and promoting universal practices, have expanded their power. As a result, gold standards and best practices are everywhere in governance.

New research, however, makes clear that generalization in corporate governance is suspect, and that the issue should always be what is best for a particular company and its shareholders.  Scrutiny is warranted for every topic in the good governance catalog: board size, director elections, term limits, age limits, DEI and ESG disclosure. The best directors focus on what’s best for their companies, not on what generalist consensus ordains as best practices.