Archive for July, 2009

Leadership in a (Permanent) Crisis

by Ronald HeifetzAlexander Grashow, and Marty Linsky for the Harvard Business Riview, July 31, 2009.

It would be profoundly reassuring to view the current economic crisis as simply another rough spell that we need to get through. Unfortunately, though, today’s mix of urgency, high stakes, and uncertainty will continue as the norm even after the recession ends. Economies cannot erect a firewall against intensifying global competition, energy constraints, climate change, and political instability. The immediate crisis—which we will get through, with the help of policy makers’ expert technical adjustments—merely sets the stage for a sustained or even permanent crisis of serious and unfamiliar challenges.

Consider the heart attack that strikes in the middle of the night. EMTs rush the victim to the hospital, where expert trauma and surgical teams—executing established procedures because there is little time for creative improvisation—stabilize the patient and then provide new vessels for the heart. The emergency has passed, but a high-stakes, if somewhat less urgent, set of challenges remains. Having recovered from the surgery, how does the patient prevent another attack? Having survived, how does he adapt to the uncertainties of a new reality in order to thrive? The crisis is far from over…(read more)

Has the Satyam scandal changed corporate governance in India?

by IT, ET Bureau for The Economic Times, July 31 2009.

Some three months ago, when the Satyam debate was still raging, a leading business channel broadcast an interview between a corporate governance expert who runs a business advisory firm and the CEO of a financial services company. The question that the host (the corporate governance expert) put forth was a burning issue that many independent directors face: Can experts who serve on multiple boards do justice to such assignments if they also hold regular jobs?

Both the gentlemen incidentally serve on at least a dozen leading boards (the host earns more than a crore every year from his board assignments) between them and also sit on the board of a leading software services firm together. So they smiled at the irony of the question as the answer from the CEO was an unconvincing warbling of clichés about knowing what one can handle and do justice to’ . That prompted them to settle on five or six as the maximum number of boards a person can serve on…

To read the complete article click here.

Coates testifies before Senate subcommittee on improving corporate governance

by the Harvard Law School News & Articles at the Harvard Law School, July 31, 2009.

On July 29, HLS Professor John C. Coates testified during a hearing of the Subcommittee on Securities, Insurance and Investment of the Senate Committee on Banking, Housing, and Urban Affairs.  In the hearing titled “Protecting Shareholders and Enhancing Public Confidence by Improving Corporate Governance,” Coates offered his recommendations for corporate governance reform…

Coates recently issued a set of recommended reforms regarding the regulation of mutual funds. The recommendations were made to the Committee on Capital Markets Regulation, an independent and nonpartisan organization whose research is aimed at improving financial regulations and practices…

To read the complete article please click here.

Executive pay limits advance in U.S. Congress

by Kevin Drawbaugh for Reuters, July 31, 2009.

WASHINGTON, July 31 (Reuters) – Eye-popping Wall Street bonuses could be banned by the U.S. government if pay packages are deemed to encourage “inappropriate risks,” under a bill approved on Friday by the U.S. House of Representatives.

The bill would allow regulators to prohibit incentive-based pay packages at large financial institutions if the packages are found to induce excessive risk-taking. Institutions with assets of less than $1 billion would be exempted.

The bill would also give shareholders in public companies the right to cast annual, nonbinding votes on executive pay, offering them a louder, if largely symbolic “say on pay.”…(read the complete article)

Financial Market Integrity

by Matthew Orsagh for CFA Centre at the CFA Institute, July 31, 2009.

CFA Institute recently released reports on Financial Market Integrity in 6 different markets. We surveyed our membership – CFA Charterholders – in these markets to get their thoughts on ethical behavior of market participants and effectiveness of capital market systems.

their financial services markets. Specifically, the index measures the level of integrity that investment practitioners experience in their respective
markets and the practitioners’ beliefs in the effectiveness of regulation and investor protections to promote such integrity. The index is designed to track
the evolution of this sentiment over time, and to signal which aspects of professional integrity and capital market systems are working well in a specific
market, and which ones are in need of improvement. This pragmatic input from working investment professionals helps raise awareness of leading issues in the
capital markets and informs the work of the Centre in conducting regulatory outreach and developing enhanced professional standards.
Wanted to make everyone aware of reports my organization (CFA Institute) recently released on Financial Market Integrity in 6 different markets.
We surveyed our membership – CFA Charterholders – in these markets to get their thoughts on ethical behavior of market participants and effectiveness of
capital market systems.
Results found here:
As you can guess a drop off in sentiment from last year. Trust in directors in US down significantly year to year. But please read and determine
ramifications for yourself.
Matthew Ors

We developed the Financial Market Integrity (FMI) Index to gauge the perceptions investment professionals have about the state of ethics and integrity in their financial services markets. Specifically, the index measures the level of integrity that investment practitioners experience in their respective markets and the practitioners’ beliefs in the effectiveness of regulation and investor protections to promote such integrity. The index is designed to track the evolution of this sentiment over time, and to signal which aspects of professional integrity and capital market systems are working well in a specific market, and which ones are in need of improvement. This pragmatic input from working investment professionals helps raise awareness of leading issues in the capital markets and informs the work of the Centre in conducting regulatory outreach and developing enhanced professional standards…

To continue reading please click here.

Protecting Shareholders and Enhancing Public Confidence through Corporate Governance

by Scott Hirst for the HLS Forum on Corporate Governance and Financial Regulation, July 30 2009.

(Editor’s Note: This post is the written testimony (with footnotes and references omitted) submitted by Professor John Coates to the Senate Banking, Housing, and Urban Affairs Subcommittee on Securities, Insurance and Investment. Professor Coates testified on July 29, 2009 in the hearing on “Protecting Shareholders and Enhancing Public Confidence by Improving Corporate Governance.” Professor Coates’s complete written testimony can be found here.  Professor Coates’ testimony, and the research of other members of the Program on Corporate Governance, was discussed in this article published on July 29, 2009 in the Christian Science Monitor.)

A. Are There Any General Lessons for Corporate Governance from the Financial Crisis?

Some have described the ongoing financial crisis as reflecting poorly on US corporate governance, as with the accounting scandals and stock market bubbles of the late 1990s and early 2000s that led to the Sarbanes-Oxley Act. Unlike those episodes, however, the ongoing financial crisis has not exposed new and widespread problems with the basic governance of most US publicly held corporations. Outside the financial and automotive sectors, most companies have suffered only as a result of the crisis, and did not contribute to or cause it. Stock prices have fallen across the board, but most price declines have more to do with the challenges facing the real economy, and the spillovers from the financial sector on companies in need of new capital, and little to do with any general problem with corporate governance…

B. Evidence on Policy Options

Turning from the general lessons of the financial crisis to some of the specific governance reforms that have been discussed or proposed in the last few years, it is important to bear in mind that corporate governance is not rocket science – in fact, it is much more complicated than rocket science. Corporations are in their simplest sense large groups of people coordinating their activities for profit. Science has a hard enough task tracking inert matter moving through space; it has a harder time predicting the behavior of a single actual or typical human; and it has the hardest time of all attempting to describe or predict how large groups of people will act – if for no other reason than researchers cannot experiment on large groups of people in realistic settings…(continue reading)

Review Proposes Fundamental Changes to Strengthen UK Bank Governance

by Sir David Walker and Morgan Stanley for the HLS Forum on Corporate Governance and Financial Regulation July 30, 2009.

On July 16 the Walker review of corporate governance of UK banks and other financial institutions (BOFIs) released a consultation paper on the future of corporate governance in the UK financial services sector (the Review).

We have recommended substantial changes to the way the boards of BOFIs function in particular through boosting the role of non-executives in the risk and remuneration process.

We recommend strengthening bank boards, making rigorous challenge in the boardroom a key ingredient in decisions on risk and measures to encourage institutional shareholders to play a more active role as engaged owners of BOFIs.

Sir David said “These proposals are designed to improve the professionalism and diligence of bank boards, increasing the importance of challenge in the board environment. If this means that boards operate in a somewhat less collegial way than in the past, that will be a small price to pay for better governance.”…

To continue reading please click here.


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(in Portuguese) A weekly chronicle about shareholders' rights & duties, activism and capital markets regulation, by Renato Chaves.
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