Corporate Governance in Crisis?

Abstract

Three weeks after submitting this analysis of the transformation of EU corporate governance regulation, outlined in the previous chapters, the collapse of Lehman Brothers investment bank triggered a meltdown in global financial markets. While there is probably no causal relationship between these two events, the financial crisis indeed brought to light the pathologies of corporate governance, and concomitantly the regulatory regime underpinning it, focused almost exclusively on shareholder value. While the initial reaction by national governments was to set up large-scale bank bailouts and (partial) renationalization programmes, public opinion very quickly turned against ‘the bankers’ who were blamed for taking excessive risks and then socializing their losses when their overleveraged and abstruse derivative constructions crumbled. As the distributional consequences of corporate governance have become more and more visible, political struggle over corporate governance regulation has intensified. The reactions to the current financial and economic crisis, most notably the intensified discussion over executive remuneration and risk management, bear witness to the contested nature of corporate governance. Banker effigies were burnt, and governments in Europe and the US saw an opportunity to show their constituents that they indeed still had some measure of control over the financial sector by introducing caps on executive remuneration or levying a bonus tax of up to 50 per cent.