October, 2009 - The Decline and Fall in the Wealth of Nations explains why ineffective governance and conflicts of interest on corporate boards were instrumental in creating the financial crises that came to a head exactly one year ago. Burdensome government regulations that will inevitably have a "rear view mirror" approach will fail, just as Sarbanes Oxley regulations are failing us now, because they don't deal with the core issues of board governance and compensation.
Our comments and conclusions are based in part on our firm's engagement for over thirteen years to work with bankruptcy administrators in Europe and the U.S. regarding one of the largest frauds in UK history. The investigation and recovery of funds embezzled from company pension plans by Robert Maxwell in the early 1990s finally concluded in 2006. During this time, we encountered the same corporate model where each company in the Maxwell group had: (1) insulated boards, (2) poor board governance, and (3) outside professionals and advisors with conflicts of interest. These three problems facilitated the massive fraud. Following our audit and forensic engagement, we published several articles and gave a series of lectures to bank trust departments in Europe and the U.S. about the tell-tale signs of corporate fraud and how fiduciaries could better insulate themselves from losses due to corporate malfeasance.
In this article, published by Offshore Investment, we explain (again) why poor board governance and conflicts of interest are at the heart of today's financial crises. Financial failures will continue at an alarming rate, whether corporate management is skilled and well intentioned or not as long as corporate governance is weak. New legislation that amends Sarbanes Oxley, and that focuses on curing these problems needs to be enacted. Otherwise, company mission statements extolling trust and integrity, and government regulation notwithstanding, we will see and experience more of the same.
The Decline and the Fall in the Wealth of Nations PDF
