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Did Corporate Governance 'Fail' During the 2008 Stock Market Meltdown? The Case of the S&P 500

55 Pages Posted: 4 May 2009 Last revised: 19 Oct 2010

Brian R. Cheffins

University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)

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Date Written: May 1, 2009

Abstract

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 paper argues “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 corporate governance functioned tolerably well in companies removed from the S&P 500 implies that the case is not yet made out for fundamental reform of current arrangements.

Keywords: corporate governance, financial crisis, board of directors, executive pay, shareholder rights

JEL Classification: G01, G30, G38, K22

Suggested Citation

Cheffins, Brian R., Did Corporate Governance 'Fail' During the 2008 Stock Market Meltdown? The Case of the S&P 500 (May 1, 2009). ECGI - Law Working Paper No. 124/2009. Available at SSRN: https://ssrn.com/abstract=1396126 or http://dx.doi.org/10.2139/ssrn.1396126

Brian R. Cheffins (Contact Author)

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom
+44 1223 330084 (Phone)
+44 1223 330055 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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