Eric Ries argues governance best practices destroy shareholder value
In his new book Incorruptible, Eric Ries contends that conventional governance models rooted in shareholder primacy lead to corporate corruption and poor performance. He cites data showing that companies with high governance ratings have underperformed since 2008.
Eric Ries, author of The Lean Startup, argues in his new book Incorruptible that conventional business best practices, particularly those rooted in shareholder primacy, often lead to the destruction of value and corporate corruption. Ries cites academic research indicating that since 2008, companies rated with good governance have performed worse for shareholders than those rated with bad governance. He characterizes this as a result of 'financial gravity,' a psychological pressure where organizations conform to the demands of resource holders, often leading to weak leadership and culture. Ries notes that exceptional companies like Costco and Patagonia, which he claims have 'terrible' or 'worst possible' governance ratings under current standards, serve as counter-examples to the inevitability of corporate decay. He traces the legal shift to shareholder primacy to the rise of general incorporation in Delaware in 1899, arguing that prior to this, companies were required to demonstrate a specific public benefit to state legislatures. Ries contends that the current legal doctrine treats organizations merely as financial instruments to enrich shareholders, a view he describes as a recent and 'un-American' development that has led to an industrial-scale 'killing of the golden goose.' He argues that the prevailing governance model, which prioritizes instant shareholder demands, is a moral and economic error that destroys long-term value and trust, and that 'best practices' should be redefined to prioritize organizational ethos and trustworthiness.