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Corporate Governance, Risk Management, and the Financial Crisis - An Information Processing View

Michael Pirson

Fordham University - Graduate School of Business Administration; Harvard University; Humanistic Management Network

Shann Turnbull

International Institute for Self-Governance; Sustainable Money Working Group; New Garden City Alliance

December 11, 2010

Fordham University Schools of Business Research Paper No. 2011-003

Using an information processing perspective we identify two reasons why boards failed to manage risk well 1) board members did not get relevant information about risks incurred by management because they lacked control over information supply; 2) board members were not able to process such risk-related information and lacked incentives or power to influence managerial decision making. Based on insights from cybernetics and decision making theory, we suggest increasing the information processing and decision making capabilities on the board level, by including multiple stakeholders on multiple boards based on a division of labor and a division of power; this alternative structure we label network governance.

This paper is one of the few papers making actual recommendations based on systemic insight. Practitioners that agree with the analysis will be able to draw conclusions for their proper governance structure, especially when their businesses operate in increasingly complex environments. Regulators could equally learn from those recommendations and include basic insights generated in their regulatory frameworks.

Number of Pages in PDF File: 33

Keywords: Corporate Governance, Complexity, Network Governance, Information Processing, Risk Management

JEL Classification: L20, M00, N00, K20

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Date posted: December 12, 2010 ; Last revised: November 2, 2013

Suggested Citation

Pirson, Michael and Turnbull, Shann, Corporate Governance, Risk Management, and the Financial Crisis - An Information Processing View (December 11, 2010). Fordham University Schools of Business Research Paper No. 2011-003. Available at SSRN: http://ssrn.com/abstract=1723782 or http://dx.doi.org/10.2139/ssrn.1723782

Contact Information

Michael Pirson (Contact Author)
Fordham University - Graduate School of Business Administration ( email )
1790 Broadway 1147
New York, NY New York 10019
United States

Harvard University
1875 Cambridge Street
Cambridge, MA 02138
United States
Humanistic Management Network ( email )
St. Gallen

Shann Turnbull
International Institute for Self-Governance ( email )
PO Box 266 Woollahra
Cell: +61418222378
Sydney, New South Wales 1350
+61293278487 (Phone)
+61280655905 (Fax)
HOME PAGE: http://independent.academia.edu/ShannTurnbull/CurriculumVitae
SKYPE: shann.turnbull
Sustainable Money Working Group ( email )
Holyoake House
Hanover Street
Manchester, M60 0AS
United Kingdom
New Garden City Alliance ( email )
113 Guinness Court
London, UK, hello@gardencities.org.uk SE1 3TA
United Kingdom
+44 207 378 1902 (Phone)
HOME PAGE: http://www.gardencities.org.uk
Feedback to SSRN

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References:  69
Citations:  9

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