Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Week's Worst Idea: Licensing Corporate Directors

Chris Windsor | Photodisc | Getty Images

Somewhere in the world there is a tear in the fabric of reality, a special place that links our world directly to Hades. And from this Hellmouth pours ideas that would make all that is wrong with the world even worse.

The latest utterance from the Hellmouth comes in the form of a proposal from Jonathan F. Foster, the founder and managing director of a private equity outfit called Current Capital.

Foster has noticed the directors on the boards of many public companies do a terrible job of supervising management or protecting the interest of shareholders. This problem seems to only get worse each year.

So Foster proposes we require directors to be licensed by the government.

I cannot think of a better way to guarantee even worse corporate governance.

The licensing process would homogenize directors, making them more similar in their beliefs than they already are. It would cement government views about competency and ethics, despite the fact the government has no qualifications when it comes to judging director competence or ethics. And it would narrow the field of potential directors to those willing to study for and submit to government testing.

Our experience with licensing has not been a good one. Let’s take the government attempt to license ratings agencies by declaring only a handful to be Nationally Recognized Statistical Ratings Organizations.

The licensing, of course, created a oligopoly that stifled competition and produced incompetence when it came to evaluating credit risk.

While we need better directors sitting on boards, we are not going to get them by filling boards from a narrower, government-approved class of directors.

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