The Limits of Measuring Governance: Governance Failures as Structural Precursors of Corporate Scandals

Abstract

Corporate performance measurement systems combine financial and non-financial indicators, sustainability metrics, and aspects of integrated reporting. In principle, these systems should provide a comprehensive view of organizational performance and support effective governance. Yet major governance failures, such as the Enron collapse, the Volkswagen diesel emissions scandal, and the Wells Fargo fake accounts case, have occurred in organizations that used advanced measurement and control systems. This inconsistency highlights an ongoing gap in how governance is measured. Using a dimension-oriented analysis, the study compares eight established frameworks, including strategic performance measurement systems, management control systems, sustainability-oriented approaches, risk management frameworks, and corporate governance codes. The analysis reveals that governance is mostly tracked using outcome-based indicators and fixed structural measures. Processes such as decision-making quality, behavior, and early risk detection are rarely measured directly. As a result, governance risks typically become visible only ex post, when they manifest as performance declines, compliance failures, or public scandals. The study concludes that even where governance is present, its quality cannot be assessed reliably. This limitation does not arise from missing data or absent governance practices, but from the structural constraints of indicator-based performance measurement systems. The study contributes by conceptualizing a governance measurement gap inherent in indicator-based performance measurement systems and by advancing a governance-centric control approach.