Did Corporate Governance 'Fail' during the 2008 Stock Market Meltdown? The Case of the S&P 500
Brian R. Cheffins
University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)
November 1, 2009
Business Lawyer, Vol. 65, No. 1, 2009
In 2008, share prices on U.S. stock markets fell further than they had during any one year since the 1930s. Does this mean corporate governance “failed?” This paperarticle argues generally “no,” based on a study of a sample of companies at “ground zero” of the stock market meltdown, namely the 37 firms removed from the iconic S&P 500 index during 2008. The study, based primarily on searches of the Factiva news database, reveals that institutional shareholders were largely mute as share prices fell and that boardroom practices and executive pay policies at various financial firms were problematic. On the other hand, there apparently were no Enron-style frauds, there was little criticism of the corporate governance of companies that were not under severe financial stress and directors of troubled firms were far from passive, as they orchestrated CEO turnover at a rate far exceeding the norm in public companies. The fact that Given that corporate governance functioned tolerably well in companies removed from the S&P 500 and given that a combination of regulation and market forces will likely prompt financial firms to scale back the free-wheeling business activities that arguably helped to precipitate the stock market meltdown, implies that the case is not yet made out for fundamental reform of current corporate governance arrangements practices as a general matter.
Keywords: corporate governance, financial crisis, board of directors, executive pay, shareholder rights
JEL Classification: G01, G30, G38, K22Accepted Paper Series
Date posted: February 3, 2010
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