In some ways, corporations are like liberal democracies. The shareholders of a company are like the people in whose interest the enterprise is run. The executive is like the government and the key to making it run successfully are the institutions that provide the checks and balances: the judiciary, the army, and bodies like the Federal Reserve Board in America have their counterparts in the board of governors, the auditors and bodies like the SEC.
Fareed Zakaria, in The Future of Freedom, pointed out how a democracy can only function well when these liberal institutions, independent of the executive, act as watchdogs and guardians of the public good. Otherwise, democracies tend towards failure. A similar conclusion can be drawn for corporations. The accountants, the boards, equity analysts et al have to be strong and independent, or the system is unbalanced.
Author: Amit Varma
Source: European Business Forum (EBF)
Subjects: Accountability, Corporate Governance, Social Responsibility