The Future of Corporate Governance: Network Governance – A Lesson from the Financial Crisis

15 Pages Posted: 22 Mar 2010 Last revised: 2 Nov 2013

Shann Turnbull

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

Michael Pirson

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

Date Written: March 15, 2010

Abstract

10.2 trillion dollars have been lost in the US alone in the past two years. 45% of world’s wealth has been destroyed and three of the largest bankruptcies in the US have occurred in the past year. Just as the majority of observers thought lessons from Enron had been learned, crisis has struck again. Massive government intervention, the collapse of the banking system, and public outrage at the missteps of executives have again highlighted the weaknesses of mainstream corporate governance systems. Contrary to popular opinion the principal cause of the crisis was not sub-prime mortgage defaults but a failure of corporate governance, states the Association of Chartered Certified Accountants. While the OECD is brainstorming new corporate governance codes, public policy makers are calling for more comprehensive and tougher regulation. How likely will those changes help to prevent a future crisis? Not very likely, we argue, unless we fundamentally rethink the underlying failures inherent to the Anglo- Saxon structure of corporate governance and regulation. In the following article, we thus examine the systemic shortcomings of Anglo-Saxon corporate governance that arise from too much power being vested in a single board. We also lay out alternative governance models based on the natural science of communication and control. We then identify why a single board cannot adequately and reliably control the complex firms that wield influence over our lives. Examples of alternative models provide evidence that managers can design governance architectures that significantly reduce the risk of systematic blind spots, and the ensuing massive wealth destruction.

Keywords: Corporate governance, financial crisis, Enron, network governance, corporate architecture, corporate boards

JEL Classification: A00, B00, K00, K2, Z1, L2

Suggested Citation

Turnbull, Shann and Pirson, Michael, The Future of Corporate Governance: Network Governance – A Lesson from the Financial Crisis (March 15, 2010). Fordham University Schools of Business Research Paper No. 2010-010. Available at SSRN: https://ssrn.com/abstract=1570924 or http://dx.doi.org/10.2139/ssrn.1570924

Shann Turnbull

International Institute for Self-Governance ( email )

PO Box 266 Woollahra
Cell: +61418222378
Sydney, New South Wales 1350
Australia
+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
Snowsfields
London, UK, hello@gardencities.org.uk SE1 3TA
United Kingdom
+44 207 378 1902 (Phone)

HOME PAGE: http://www.gardencities.org.uk

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
Switzerland

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