How to survive the Credit Crunch. Can good Corporate Governance help?

Author:Mark GOLD, ACCA

JEL:

DOI:

Keywords:corporate governance, risk management, governance principles, financial audit, accounting

Abstract:
What started out as an issue in an obscure section of the US housing market over two years ago, has led to the current difficult global economic conditions in which we all find ourselves.\r\nACCA takes the view that a main cause is, in fact, poor corporate governance.\r\nThe causes are many but poor corporate governance and risk management were at heart of the problem: • over-complexity of products and lack of understanding by management of the associated risks; • excessive reliance on leverage; • inter-connectedness of financial institutions; • misalignment between the interests of the different parties involved in complex financial products; • complacency after a prolonged bull market; • failure to appreciate cultural factors such as the influence of human greed; • failure to manage the link between business risks and remuneration incentives; • excessive risk taking and short-termism resulting from remuneration structures and bonuses; risk management departments that lacked influence and power; • weaknesses in reporting on risk and financial transactions; • poor oversight by senior executives and a lack of rigorous challenge by independent non-executive directors; • a lack of accountability generally within organisations and between them and their owners.\r\n

---