Winning at Corporate Governance

CAMBRIDGE: Despite NASDAQ crashes and the threat of US recession, the New Economy is here to stay. Indeed, it remains the key to improved performance in Europe and Japan in the years ahead. But where, exactly, does the heart of the New economy lie? Is it in more competitive labor markets or in better tax systems or in deregulation? Corporate governance, too, is a motor of the New Economy that should not be underrated.

If managers create productive, flexible structures focused on wealth creation, companies find it easy to adjust and explore new sources of productivity and cost control. If decentralization and risk taking are part of a company’s mission, innovation in products and processes is certain to take place. If, on the contrary, bosses behave like cautious executors of a wealthy estate, their companies will soon look like museums.

A country’s economic performance, indeed, is a mirror image of its resident companies. Countries with great companies show great performance. Where then are the great companies of the world to be found?

No surprise that more than half of the most respected companies are American. Although Europe is roughly the same economic size as the US, it has far fewer winning corporate teams. Japan may be much smaller than America or Europe, but it underperforms its share of G7 income or wealth. The picture could not be clearer: the US economy performs stunningly, as does its corporate sector; Europe is far behind; and Japan does not really register.