Can Network Governance Reduce the Risk of Future Financial Failures?

Abstract

The financial crisis of 2008/09 has many roots and remedies will have to be multipronged. However, there seems no doubt that corporate governance mechanisms failed with regard to risk management across the board. In this presentation, we show the systemic shortcomings of a unitary board which will allow future crises to happen if not remedied. Many directors argued, that 1) they did not know about the risk, 2) they did not think the information was relevant, 3) there was simply too much information, and 4) they could not do anything about it. We argue that they are probably correct with all four explanation, because the structure of a unitary board supports such fundamental flaws in risk management. We also propose alternatives based on the science of governance (cybernetics) and decision theory.