Effective corporate governance is, no doubt, an ongoing challenge among all companies but especially within financial firms. Conflicting incentives elicit stark agency problems among the various stakeholders. Of course, within financial firms, executives and their boards control virtually every decision the company makes, affecting multiple stakeholder groups.
The Enron collapse now seems like a distant memory, and its scale is so tiny compared to the 2008–09 financial crisis that it almost feels like it wasn't really that bad. But it was.
Most studies of the impact of family ownership indicate that, on balance, family control is a good thing for stockholders. And Warren Buffett agrees, saying, "Family-owned businesses share our long-term orientation, belief in hard work, and a no-nonsense approach and respect for a strong corporate culture."
Robert A. G. Monks, a pioneer of corporate governance, shares his picks for the best learning resources.
In August 2007, the head of AIG’s financial products division stated, “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar” in any credit default swap (CDS) transactions. Five months later, AIG disclosed that it had lost not $1.00 but $5 billion on its CDS exposure. This turn of events is just one example of sophisticated financial institutions’ hugely misjudging the risk of “financial weapons of mass destruction.” The reasons for their systematic failure deserve thoughtful and rigorous study.
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