The Global Economy in Turbulent Times

CHAPTER 144 On Corporate Governance and Doing It Right¹

Of late, the issue of governance has been in the limelight. I just returned from the Asian Shadow Financial Regulation Committee (ASFRC) annual meeting, held in conjunction with the Asian Financial Management Conference in Singapore. Corporate governance (CG) was the sole preoccupation of the 10 ASFRC members present. In order to better cope with the unique characteristics of corporate Asia, its communiqué emphasized real improvements in governance, which have since become ever more urgent and critical.² Furthermore, new recognition that financial institutions should “assist in protecting taxpayers . . . creates new challenges” for their boards of directors. This realization can result in a “potential dilemma” that requires a new mind-set to resolve.

The Big Picture

The recent financial crisis, triggered by bankruptcy of Lehman Brothers, raised serious issues on governance of the systemically important financial institutions (SIFIs) and how they are regulated and supervised. The massive injection of public monies in the United States and Europe—estimated by the European Commission at up to 25 percent of gross domestic product (GDP)—raised a huge outcry among taxpayers about moral hazard and the diminished responsibility of private stakeholders. Indeed, the European Commission’s Larosière report highlighted three crucial gaps: (1) boards of directors (BoDs) and supervisory and regulatory authorities (SRAs) failed to understand ...