If there is one major lesson to draw from the financial crisis, it is that corporate governance matters.
Directors, regulators and shareholders, but also policymakers and the general public, need to pay more attention to corporate governance. This tells us how firms operate, their motives and principles, their reporting lines, who they are accountable to, and how they manage profit, remuneration and, in the case of many financial firms, other people's money. When times were good, too many people took their eye off the ball and now we see the consequences.
The public outcry has been loud and understandable, not least in relation to executive pay. And even some top executives have now admitted the lack of relationship between pay and performance and called for a salaries shake-up. We now realise that constantly rising share prices is not necessarily a sign of good corporate governance. In fact, as recent history shows, it could actually be the opposite.
The question is, what can be done to improve how financial firms operate? We have been examining the crisis closely and in particular seeing how the OECD Principles of Corporate Governance might help or, indeed, be improved in light of recent experiences.
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