The Financial Crisis: Does Good Corporate Governance Matter and How to Achieve it?

DSF Policy Paper No. 14

16 Pages Posted: 14 Dec 2011

See all articles by Jaap W. Winter

Jaap W. Winter

Vrije Universiteit Amsterdam; University of Amsterdam; Insead

Date Written: December 14, 2011

Abstract

After the governance crisis of 2001-2003 and the regulatory response through the Sarbanes-Oxley Act and the European corporate governance codes, the financial crisis has revealed persistent governance problems in financial institutions relating to executives, non-executives and shareholders. For executives these problems lie in the areas of risk and remuneration. Non-executives may have been insufficiently involved in key decisions and underlying direction of the institutions, despite the strong push to increased monitoring by non-executives through Sarbanes-Oxley and European governance codes. Institutional investors have shown a general lack of engagement with investee companies. The paper continues to critically review the governance provisions for financial institutions set forth in the recent proposals for a European Capital Requirements Directive IV and related Regulation. It concludes that regulation often is not the best way to deal with the persistent governance problems, either because it cannot deal with the intricacies of corporate and human reality, as is the case of board and non-executive director performance, or because it will be ineffective as long as underlying generally held beliefs, world views, assumptions and paradigms remain unaffected, for example in the case of risk culture, remuneration and institutional investor lack of engagement. Regulation may actually worsen the situation in some cases, like remuneration and board performance. It takes courage not to regulate and seek alternative avenues to address such problems.

Keywords: corprate governance, non-executives, institutional investors, regulation

JEL Classification: D72, D81, G10, G14, G30, G34, G38

Suggested Citation

Winter, Jaap W., The Financial Crisis: Does Good Corporate Governance Matter and How to Achieve it? (December 14, 2011). DSF Policy Paper No. 14. Available at SSRN: https://ssrn.com/abstract=1972057 or http://dx.doi.org/10.2139/ssrn.1972057

Jaap W. Winter (Contact Author)

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam
Netherlands
+31653978419 (Phone)

University of Amsterdam ( email )

Oude Manhuispoort
Amsterdam
Netherlands

Insead ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

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