Corporate Governance Practices and Financial Crisis

Abstract

With the ongoing global financial distress and recession, the issue of governance mechanism has become even more important and is being highly discussed. Starting with distresses caused by misuse of risk controls for dreadful obligations, collateralization of obligation protection and misrepresentation, significant financial foundations in the United States and Europe confronted a credit crisis and a break in financial movement. The crisis quickly formed and spread into a worldwide financial shock, bringing about various European bank disappointments, decreases in different stock records, and extensive declines in the market estimation of values and items. Corporate Governance (CG) aims to reduce the likelihood of deception, malpractices, monetary frauds and delinquency of management (Ubha and Cahill, 2007). This study analyses the impact of failures and weaknesses in corporate governance on the financial crisis. It concludes that the financial crisis can be to an important extent attributed to failures and weaknesses in corporate governance arrangements which did not serve their purpose to safeguard against excessive risk taking in a number of financial services companies. Accounting standards and regulatory requirements have also proved insufficient in some areas. Last but not least, remuneration systems have in a number of cases not been closely related to the strategy and risk appetite of the company and its longer term interests. The article also suggests that the importance of qualified board oversight and robust risk management is not limited to financial institutions. The remuneration of boards and senior management also remains a highly controversial issue in many countries.