Will Corporate Governance Reform Become Reality

by Robert Kropp for Social Funds, March 8th, 2011.

A report from the United Nations Conference on Trade and Development documents corporate governance failures that led to the financial crisis and provides recommendations for reform.

SocialFunds.com — That the failure of corporate governance at large financial institutions was central to the financial crisis is, by now, a widely-held insight, one which has been explored in many studies published by corporate governance experts, nongovernmental organizations (NGOs), and shareowner advocates. In many of those studies, corporate governance failures have been linked to a disregard for the long-term implications of environmental, social, and corporate governance (ESG) issues, a disregard which excluded the legitimate concerns of many key stakeholders.

A new report from the United Nations Conference on Trade and Development (UNCTAD), entitled Corporate Governance in the Wake of the Financial Crisis: Selected international views, brings together the perspectives of a number of contributors in order “to inform ongoing reform efforts and document the work of major organizations,” according to UNCTAD. The report details the governance failures that led to the crisis, and provides recommendations for regulators and policymakers whose responsibility is to implement reforms.

According to the report, areas of corporate governance most in need of reform include board oversight of management, risk management as a key board responsibility, and compensation practices that balance risk and long-term performance criteria.

As Mervyn King, Chairman of both the South Africa-based Integr ated Reporting Committee (IRC) and the Global Reporting Initiative (GRI), wrote in his Foreword to the report, “One of the hallmarks of the great outside director is the ability to ask intellectually naïve questions to test risk or the quality of a recommendation from a sub-committee in regard to taking risk for reward.” Such questions, he argued, “Would have changed the risk profile of the securitized mortgage packages” whose collapse launched the crisis. (continue reading… )

 

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