Minimizing a 'Key Cause' of the 2008 Financial Crisis: Governance Failure

34 Pages Posted: 5 Apr 2014 Last revised: 5 Jun 2014

See all articles by Shann Turnbull

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: August 8, 2012

Abstract

The US Financial Crisis Inquiry Commission Report stated: “dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis.” The Lehman Brothers liquidator’s report and other sources explain the systemic deficiencies in the dominant centralized system of corporate governance. Evidence is provided that: (a) Stakeholders possessed knowledge of both systemic and firm specific risks; (b) Centralized governance denied stakeholders engagement to identify and mitigate risks. This leads to the hypothesis that decentralized governance described as “network” governance, provides a basis to reduce the “key cause” of firm and regulatory failure. The hypothesis is supported by system science that has identified the impossibility of reliably regulating complexity without a requisite variety of communication and control channels. We recommend that regulators introduce network governance to provide a requisite variety of stakeholder boards as co-regulators of large complex firms.

Keywords: Co-regulators, Corporate Governance, Financial Crisis, Network Governance, Risk Management, System Science

JEL Classification: B49, D02, D03, D74, D85, G18

Suggested Citation

Turnbull, Shann and Pirson, Michael, Minimizing a 'Key Cause' of the 2008 Financial Crisis: Governance Failure (August 8, 2012). Fordham University Schools of Business Research Paper No. 2261517. Available at SSRN: https://ssrn.com/abstract=2261517 or http://dx.doi.org/10.2139/ssrn.2261517

Shann Turnbull (Contact Author)

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 )

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Hanover Street
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New Garden City Alliance ( email )

113 Guinness Court
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London, UK, hello@gardencities.org.uk SE1 3TA
United Kingdom
+44 207 378 1902 (Phone)

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

Michael Pirson

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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