Countervailing Power

René Doff

Countervailing power has become a buzzword in the corporate governance debate. The case studies of Chapter 4 all included an element of insufficient countervailing power as a governance instrument to avoid risks. The case of Lehmans is a classic example, as the countervailing power existed on paper, but not in practice. Other examples include Enron, Worldcom, Ahold, ABN AMRO and Volkswagen. Why is countervailing power so important?

Many corporate governance codes have been issued to avoid excesses, such as Sarbanes–Oxley and the UK Corporate Governance Code. While many of these codes aim to protect shareholder rights, one of their common elements is to prevent excesses due to a concentration of power in one person (or a few) in the board. Ultimately, the risks of concentration of power could damage shareholder value. Institutionalising countervailing power can be used as an instrument to avoid any deliberate abuse of power. Some of the scandals mentioned above involved plain fraud by the company or a few individuals within the company. Whistleblowers were silenced by the top management of the company, which was possible because of the centralisation of power within the company