A Prescription for Corporate Governance

by Richard Perkey, for Corporate Compliance Insights, January 12, 2010.

In May of 2009, President Obama signed a bill which led to the establishment of the 10-person Financial Crisis Inquiry Commission, whose purpose is “to examine the causes, domestic and global, of the current financial and economic crisis in the United States.”  In essence, the Commission will be performing an “economic MRI” on the credit crisis, reporting its findings to the President in December of 2010.

In its search for the root causes of the Crisis, it is my hope that that the Financial Crisis Inquiry Commission will closely examine the backbone of our market economy: corporate governance. Economists may disagree on the base causes of the current crisis, but there is ample evidence that defective corporate governance practices have played a pivotal role.

It is our belief that many financial services company Boards were ill-prepared for the credit crisis.

The boards of financial services companies that grew through serial acquisitions have been especially guilty of not reconstituting their Boards to insure the right skill sets existed. Instead, these boards would select two to three of the longest serving board members of an acquired institution – not because these directors had any risk management or capital markets acumen commensurate with the business model of a growing financial institution, but because they could help maintain a nice geographic representation between the acquirer and the acquired…(continue reading)

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