The “Corporate Governance Misalignment” Problem

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2017-03-24

Posted by David J. Berger, Wilson Sonsini Goodrich & Rosati, on Thursday, March 23, 2017
Editor's Note: David J. Berger is Partner at Wilson Sonsini Goodrich & Rosati. This post is based on Mr. Berger’s recent remarks at the SEC Investor Advisory Committee, available here.

On March 9, 2017, the SEC’s Investor Advisory Committee (“IAC”) held an open meeting to discuss, among other things, unequal voting rights of common stock. I was one of four presenters to the IAC, and my presentation focused on how what I call the “corporate governance misalignment” has led many successful companies, especially technology companies, to adopt dual-class (or multi-class) stock in recent years.

The presentation asked an important—but unspoken—question in corporate governance today: if corporate governance is fundamental to good corporate performance (as I believe it is) why are many of today’s most innovative and successful companies considered to have bad (or at least below average) corporate governance? More broadly, why is the most dynamic sector of this country’s economy—the technology sector, best represented by Silicon Valley—also generally viewed to have poor corporate governance?