Investigating systematic approaches to assessing corporate governance, Lauren M. Cunningham, Christie Hayne, Terry L. Neal, and Sarah E. Stein, in their work Evaluating Corporate Governance: Guiding Principles and Calls for Future Research propose a set of guiding principles to enhance governance evaluation practices. Drawing insights from interviews with 29 Chief Audit Executives (CAEs) from publicly traded U.S. companies, the study emphasizes the need to move beyond symbolic assessments to achieve more comprehensive and effective governance oversight.
Corporate governance evaluations are often fragmented and focus narrowly on legal compliance or committee-specific performance. Such approaches fail to capture the broader objectives of governance, such as ethical decision-making, accountability, and alignment with corporate goals. The authors advocate for tailored evaluations that account for company-specific risks, objectives, and stakeholder expectations. They emphasize that governance is not a one-size-fits-all concept, and effective evaluations must align with a company’s strategic context.
The guiding principles recommend beginning with the definition of governance objectives, which should encompass oversight, risk management, and stakeholder alignment. CAEs play a critical role in this process, given their unique position and expertise in assessing organizational structures and processes. The principles also highlight the need for a unified governance framework, as the U.S. currently lacks an authoritative model for evaluating corporate governance. This absence often forces organizations to rely on ad hoc compilations of existing frameworks, such as COSO guidelines or industry-specific best practices.
To conduct a thorough evaluation, the authors propose a structured audit plan that integrates both qualitative and quantitative data. This includes leveraging existing documentation, conducting interviews and surveys, and critically assessing evidence for substance over form. Evaluators are encouraged to adopt a risk-based, top-down approach, beginning at the board level and cascading through all organizational layers. The principles emphasize the importance of benchmarking against prior practices, industry standards, and leading governance frameworks to ensure robustness.
The study also highlights challenges faced by CAEs in executing governance evaluations, such as resource constraints, obtaining buy-in from leadership, and the lack of clear evaluation benchmarks. To address these issues, the authors suggest that professional organizations, such as the Institute of Internal Auditors (IIA), play a central role in promoting and standardizing governance evaluation practices. They also call for further research to validate the proposed principles and explore their applicability across different organizational contexts.
In conclusion, the proposed guiding principles aim to bridge the gap between theoretical research and practical application, offering a roadmap for more effective governance evaluations. The study provides a foundation for future efforts to standardize governance assessment practices and enhance the overall accountability and transparency of corporate governance systems. For more detailed insights, the article is published in Accounting Horizons here.