A recent article by Fan Yang, “Rethinking Governance: Indigenous, Western, and DAO Approaches,” stopped me in my tracks. Yang argues that governance operates in three interdependent layers: a pre-political layer (shared meaning, legitimacy, moral boundaries), a political layer (authority, law, collective decision-making), and an economic layer (circulation, incentives, exchange). Her central idea: when the sequence is inverted — when economic logic overrides political authority and erodes shared meaning — governance collapses.
Yang applies this framework to indigenous systems, Western institutions, and DAOs. But as I read, I could not stop thinking about something closer to my daily work: corporate boards. Because the same structural fault she describes at the societal level repeats itself, with surprising regularity, in boardrooms all over the world.
The missing layer in corporate governance
For decades the conversation about corporate governance has revolved around the same things: board structure, independence, committees, incentive design, regulatory compliance. All important. None sufficient.
Most boards operate in two layers: the institutional (rules, roles, decision processes) and the economic (incentives, capital allocation, performance metrics). These are the visible layers — the ones that are audited, regulated, and taught in director-training programs.
But there is a third layer — deeper, harder to measure, and for that very reason easier to ignore — that determines whether the other two actually work or turn into corporate theater. Let us call it the foundational layer: the set of genuinely shared values, authentic purpose, perceived legitimacy, and internalized ethical boundaries that give meaning to everything else.
I am not talking about the purpose statement framed in the lobby. I am talking about something more basic: Why does this organization exist? To whom does it owe something? What are we unwilling to do, even if it is legal and profitable?
When this layer is solid, the institutional and economic mechanisms work as designed. When it is weak or nonexistent, those same mechanisms become distorted — not out of bad faith, but for lack of a foundation.
What happens when the floor is missing
The most emblematic cases of corporate-governance failure were not, for the most part, technical failures:
- Wells Fargo (2016) had impeccable committees, policies, and metrics. What it did not have was a culture that placed real limits on the pressure for results. The incentive system — the economic layer — operated without ethical restraint — the foundational layer. The result: millions of fraudulent accounts opened without customer consent.
- Wirecard (2020) formally complied with governance standards. But the institutional layer was captured: the board did not question, the auditors did not verify, the regulators did not investigate. Without internal legitimacy or a culture of accountability, the rules were mere decoration.
- Boeing (after its merger with McDonnell Douglas) is a textbook case of how economic logic can erode purpose. Engineering as the company’s core identity was progressively subordinated to financial metrics. The result was a degradation of safety that cost 346 lives.
In all three cases, the institutional and economic layers were “in order.” What failed was the ground on which they were built. This is exactly Yang’s point, applied to the corporate world: when the pre-political layer is weak, overridden, or simply absent, no institutional design can compensate for it.
Elinor Ostrom had already seen it — outside the firm
The economist Elinor Ostrom, 2009 Nobel laureate, devoted her career to studying how real communities govern shared resources without depending on the State or the market. Her findings — synthesized in Governing the Commons (1990) — are surprisingly relevant to corporate governance:
- Rules work when they emerge from the group, not when they are imposed from outside.
- Legitimacy is built through participation and mutual accountability, not just formal structure.
- Sustainable systems define clear boundaries — not only of resources, but of acceptable behavior.
- Monitoring is effective when it is peer-to-peer, not only hierarchical.
From the management of common goods, Ostrom described exactly what distinguishes a board that works from one that only appears to work: the quality of the relational and normative fabric that precedes the formal rules.
What does this mean in practice?
I am not suggesting that boards abandon structure or incentives. I am suggesting they recognize that without a foundational layer, everything else is fragile. Some questions a board should ask itself — and that rarely appear on the agenda:
On genuine purpose: can we articulate, in two minutes and without reading the annual report, why this company exists beyond generating returns? Do employees believe it?
On real ethical boundaries: are there decisions we have explicitly ruled out — not because they are illegal, but because they are incompatible with who we are? Or are our boundaries defined only by current regulation?
On legitimacy: who are the stakeholders who have no voice at this table but whose lives we directly affect? How do we ensure their interests are represented?
On a culture of accountability: can the CEO be challenged in this room without political consequences? Do directors ask one another uncomfortable questions?
A three-layer model for boards
Building on Yang’s framework, I propose thinking of corporate governance as a system of three interdependent layers, where the sequence matters:
- Foundational layer (purpose, values, legitimacy, boundaries) — informs and limits
- Institutional layer (structure, roles, committees, decision processes) — channels and regulates
- Economic layer (incentives, capital allocation, performance metrics)
The correct sequence is top-down: purpose defines the rules, and the rules discipline the incentives. When the sequence is inverted — when incentives define the rules and the rules erode purpose — it is only a matter of time before the system fails. And when it fails, we are always surprised. We should not be.
A final provocation
The next time you assess the quality of a company’s corporate governance, do not start with the board structure or the CEO’s compensation plan. Start with a simpler and harder question: On what ground is all of this built? If the answer is solid, the mechanisms will work. If the ground is sand, no structure will hold.
This reflection was inspired by Fan Yang’s article comparing indigenous, Western, and DAO models of governance. Her framework gave me a fresh lens to revisit something I have been thinking about for years: why so many well-designed boards keep failing.