Corporate Consilience

Central America is at an inflection point regarding acceptable compliance and conformity. Among all the anxiety and instability that change will bring, it is welcoming to see that separate disciplines are pushing towards similar objectives in Corporate Governance. A quick discussion on Director´s Responsibility provides a glimpse on how new Governance issues will reshape slanted interpretations of the law.

We´ll try to make a point for "Consilience" in Corporate Culture by using a short hypothetical case. We will make a looser use of the concept of Consilience than what has been recently used by Edward O. Wilson, (a term apparently coined in 1858 by William Whewell) as a de-fragmentation and a coming together of knowledge of different fields.

We have recently had the opportunity to collaborate towards the adoption of standardized compliance norms in Guatemala while separately, discussing the interpretation of a Director´s responsibility norm in Guatemala´s commercial code. We´ll maintain this example at a theoretical level, assuming a case where company directors are allegedly involved in serious misconduct for personal gain. Under Guatemala´s Commercial Code, in order for minority shareholders to bring a personal liability case against encumbered directors, it is required that minority shareholders, representing more than 10% of voting stock, must have voted beforehand against the decision of a general shareholder´s meeting to exempt such directors of their responsibility (as determined by article 175 of the Guatemalan Commercial Code "CC"). In this hypothetical case, the directors are appointed by the majority shareholders who allegedly benefit from such conduct. This same majority avoids issuing a vote approving (or rejecting) the Director´s conduct and thus the minority shareholderswill allegedly never be able to bring about a Directors Responsibility case, creating a de facto protection by the majority shareholders and its appointed directors. The law provides for actions against illegal decisions or decisions conflicting with the by-laws but is not explicit regarding the avoidance of decisions.

The suspect behavior originates from something Barry Staw devised in the 70s as "Escalation of Commitment To a Loosing Course of Action" now a common term for organizational psychologists. In this case, Escalation of Commitment is exemplified by the systematical use of company funds for personal gain and an escalating attempt to generate more...