When 'Good' Corporate Governance Makes 'Bad' (Financial) Firms: The Global Crisis and the Limits of Private Law

8 Pages Posted: 24 Nov 2009 Last revised: 11 Dec 2009

Nicholas Calcina Howson

University of Michigan Law School

Date Written: November 17, 2009

Abstract

In the aftermath of the Global Financial Crisis, legislators, regulators and journalists have focused on "bad" corporate governance as one root of the evil visited on the global financial system, and "good" or "improved" corporate governance as one of the remedies for repair. This short writing - using BNP Paribas and AIG as examples - makes the perhaps counter-intuitive argument that, insofar as "good" corporate governance made directors and managers responsive to the shareholders' interest, it may have caused those same directors and managers to take on unsustainable risk so as to increase current profits and support the public stock price valuation. This means that "good" corporate governance is not really a solution to remedying or protecting against the next Crisis, and indicates why long-term, systemic risk-regarding, prudential regulation is.

Keywords: corporate governance, financial sector, global financial crisis, prudential regulation, banks, financial institutions

JEL Classification: D23, F02, F30, G15, G18, G30, K22, K23, M14

Suggested Citation

Howson, Nicholas Calcina, When 'Good' Corporate Governance Makes 'Bad' (Financial) Firms: The Global Crisis and the Limits of Private Law (November 17, 2009). Michigan Law Review, First Impressions, Vol. 108, p. 44, December 2009; U of Michigan Law & Economics, Olin Working Paper No. 09-024. Available at SSRN: https://ssrn.com/abstract=1511904

Nicholas Calcina Howson (Contact Author)

University of Michigan Law School ( email )

701 South State Street
3234 South Hall
Ann Arbor, MI 48109-3091
United States

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