How well does legislation do on the playing field of corporate governance? That's the question behind a
little fable penned by a pair of governance scholar-consultants, to mark the anniversary of the passage of the Dodds-Frank Act in the US. They imagine trying to apply its strictures to a real-life case much on the minds of US business people, though for reasons normally associated with leisure, not business. In their brief paper, David Larcker and Brian Tayan ask us to consider the governance failures in the National Collegiate Athletic Association. In recent years, NCAA football has been rocked by a
string of high-profile violations, including teams at some of the most prominent names in American college sport: the University of Southern California, Ohio State, the University of Miami and Auburn University. These are big business. The football teams generate very large surpluses that help to fund the rest of the university. The build pride among the alumni, too, who then fill the coffers with yet more funds. "In many ways, these violations were similar to the governance breakdowns at financial and other corporations leading up to the financial crisis of 2008 and 2009," the scholars write. So what if we imposed the Dodd-Frank Act on them. What would happen?
- Sport vs business: If these requirements would not work in an athletic setting, should we expect them to work in business?
- Mandatory vs voluntary: Why are the governance provisions of Dodd-Frank legally required, rather than voluntarily adopted by individual companies?
- Money vs failure: Why does Dodd-Frank place such emphasis on executive compensation and disclosure? Will its compensation requirements reduce governance failures?
We won't give the game away by recounting all of the highlights. For that, take a look at their "Closer Look" case study.
Source document: The tall tale "The NCAA Adopts 'Dodd-Frank': A Fable," by David Larcker and Brian Tayan of the Stanford Graduate School of Business, is a six-page pdf file.
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