Corporate Governance and Financial Crisis

Abstract

Corporate governance represents a highly debated topic, taking significant part of the ink during the last decade. Many things have been said in the aftermath of the 2007– 2009 financial crisis; some even consider acknowledging that corporate governance represents a generally accepted consequence of the crisis. The OECD Steering Group has also issued a report upon the crisis concluding that, among its major contributors, we find corporate governance failures and weaknesses that allowed excessive risk taking. The report, suggestively entitled, “The Corporate Governance Lessons from the Financial Crisis,” also mentions a series of other significant contributors, such as limited transparency and lack thereof, prudential standards, risk management, accounting standards, and lending activities. In the context of a worldwide recession caused by excessive credit expansion, central elements of corporate governance, such as executive remuneration, internal control, risk management, the board of directors, independent non-executive directors, and shareholders’ role, are currently being reconsidered and closely analyzed (M. Walker, Accounting for varieties of capitalism: The case against a single set of global accounting standards, The British Accounting Review, No. 42, 2010, pp. 137–152). Using structured financial instruments, financial institutions are buying and reconstructing within an even more complicated structure. Afterwards, they sell them at a higher price to other financial institutions. The new buyers will follow the same recipe. Using this category of derivative financial instruments, banks now seem to be anxious to risk shareholders’ money in order to invest in complex structured instruments that they knew little about (C. Butler, Accounting for Financial Instruments, John Willey & Sons England, 2009). That is why investigators looking into such a serious financial crisis are now focusing their attention on those responsible for trading these instruments. More Int Adv Econ Res (2012) 18:122–123 DOI 10.1007/s11294-011-9332-1