The Cosmetic Corporate Governance; Will companies learn lessons from the Global Financial Crisis!
By Hany Abou-El-Fotouh,CAMS, CDIR
The global financial crunch sheds light on the significance of understanding what has happened in big financial institutions which collapsed and what we need to do to address defects in the thin-surfaced cosmetic arrangements of corporate governance and accountability. Obviously, the problems were not due to lack of corporate governance in these organisations, but how rather corporate governance framework has been used to mislead different stakeholders including the regulators. If something could be considered a teachable episode, it is the current financial crisis and how poor corporate governance helped to produce the shocking results.
The impact of the crises started to diminish. Still, all key players, including top executives, regulators and investors, have much to learn from the global financial failures. The Organisation for Economic Co-operation and Development (OECD) Steering group has issued a report entitled Corporate Governance Lessons from the Financial Crisis. This Report concludes that among major contributors to the financial crisis are failures and weaknesses in corporate governance arrangements. When they were put to a test, corporate governance routines did not serve their purpose to safeguard against excessive risk taking in a number of financial services institutions.
Other key contributors to the global financial crises include failures in transparency, failures in lending standards; failures in prudential standards; failures in risk-management.
As to the remuneration of top executives, the real problem was not the amount they receive; it is how companies pay them. The bad bonus culture encourages a short-term thinking: hit as many deals as you can this year and get a larger bonus! That approach pushed executives to focus their attention to achieving short term objectives at the expense of... [continues]
By Hany Abou-El-Fotouh,CAMS, CDIR
The global financial crunch sheds light on the significance of understanding what has happened in big financial institutions which collapsed and what we need to do to address defects in the thin-surfaced cosmetic arrangements of corporate governance and accountability. Obviously, the problems were not due to lack of corporate governance in these organisations, but how rather corporate governance framework has been used to mislead different stakeholders including the regulators. If something could be considered a teachable episode, it is the current financial crisis and how poor corporate governance helped to produce the shocking results.
The impact of the crises started to diminish. Still, all key players, including top executives, regulators and investors, have much to learn from the global financial failures. The Organisation for Economic Co-operation and Development (OECD) Steering group has issued a report entitled Corporate Governance Lessons from the Financial Crisis. This Report concludes that among major contributors to the financial crisis are failures and weaknesses in corporate governance arrangements. When they were put to a test, corporate governance routines did not serve their purpose to safeguard against excessive risk taking in a number of financial services institutions.
Other key contributors to the global financial crises include failures in transparency, failures in lending standards; failures in prudential standards; failures in risk-management.
As to the remuneration of top executives, the real problem was not the amount they receive; it is how companies pay them. The bad bonus culture encourages a short-term thinking: hit as many deals as you can this year and get a larger bonus! That approach pushed executives to focus their attention to achieving short term objectives at the expense of... [continues]
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