• Gambling

    The Horse Race Approach to Corporate Governance

    The sound of thundering hooves in the stretch is one of the quintessential Kentucky experiences. Whether you love or loathe the sport, horse racing is an American institution with a long history of cultural significance. The race is also a popular and lucrative form of gambling. But the sport faces a significant challenge in the current environment. A steady stream of scandals, ranging from safety to doping, has turned many potential new fans away. As a result, horse races are fewer and farther between, and the sport’s future looks uncertain.

    The sport’s history is rich with famous horses and events, including the immortalization of Seabiscuit, the greatest thoroughbred racehorse ever to grace a track, the death of Man o’ War in 1943 and Kelso’s run to a world championship in 1948. The modern sport’s earliest origins are difficult to pinpoint, but horse races have been recorded as early as 700 to 40 B.C. In its early days, the sport was primarily a blood sport that required considerable skill and knowledge to master.

    A major type of race is the handicap, in which the racing secretary adjusts the weights that the horses must carry to make each more evenly matched. In addition, there are sex allowances that provide lighter loads for fillies and heavier ones for males.

    Another form of racing is the dash, in which one horse runs a single mile. This type of race is not as prestigious as the stallion race or the stakes, but it allows more novice jockeys to compete. A race for five-year-olds and older is a sprint, while a six-year-old race is a classic or a handicap.

    Some executives and governance observers are uncomfortable with the horse race approach, which involves overt competition for the CEO role among several well-known candidates within an established time frame. But this method has helped to produce a number of outstanding leaders at admired companies, including General Electric, Procter & Gamble and GlaxoSmithKline. The key to success is that companies that employ the horse race approach cultivate a culture that embraces leadership competition and ensures that frontrunners are systematically prepared for their roles. This includes ensuring that the skills-sets of the next CEO are aligned with the company’s strategy, and benchmarking frontrunners against external talent to ensure they meet best-in-class standards.