A new analysis finds a correlation between poor governance and failed investment banks: those investment banks that crashed had more entrenched directors, more power vested in the CEO, and less board expertise in the financial industry.
London-based Nestor Advisors compared three failures–Bear Stearns, Lehman Brothers, and Merrill Lynch–against three survivors: Goldman Sachs, JPMorgan Chase, and Morgan Stanley.
Nestor’s conclusion: the wrecks had more entrenched directors, more power vested in the CEO, and less board expertise in the financial sector that led to even less risk oversight than normally exercised by U.S. investment bank boards. Nestor’s “most counter-intuitive conclusion?” GPW reports: the wrecks had a greater degree of alignment between executive compensation and long-term shareowner value.
“The real question to ask in the future is whether such hardwired, single-minded alignment to the shareholders—long the holy grail of investor activism—is appropriate for systemically important financial institutions,” the study says.