The Corporate Governance Movement, Banks and the Financial Crisis

The Corporate Governance Movement, Banks and the Financial Crisis

Brian Cheffins

Series number :

Serial Number: 
232/2014

Date posted :

December 01 2013

Last revised :

January 08 2014
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Keywords

  • Corporate governance • 
  • Banks • 
  • financial crisis • 
  • board of directors • 
  • agency costs • 
  • chief executive officers

This paper discusses why a ?corporate governance movement? that commenced in the United States in the 1970s became an entrenched feature of American capitalism and describes how the chronology differed in a potentially crucial way for banks.

The paper explains corporate governance?s emergence and staying power by reference to changing market conditions and a deregulation trend that provided executives with unprecedented managerial discretion as the 20th century drew to a close. With banking the historical pattern paralleled general trends in large measure. Still, while the ?imperial? CEO who surged to prominence in the 1980s became outmoded for the most part after corporate scandals at the start of the 2000s, this was not the case with large financial companies. The continued boldness of ?star? CEOs in the financial services industry plausibly contributed to the market turmoil of 2008 but the financial crisis emphatically ended this corporate governance ?free pass? banks had enjoyed.

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