Corporate governance failures and the road to crime

Author:Peter Yeoh
Position:School of Law, Communications and Social Sciences, University of Wolverhampton, Wolverhampton, United Kingdom
Pages:216-230
SUMMARY

Purpose - The purpose of this paper is to provide enhanced insights on corporate governance failures which contributed to various financial crimes in major banking institutions and whether those involved have been held sufficiently accountable in the USA and the UK. Design/methodology/approach - This interdisciplinary doctrinal... (see full summary)

 
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Corporate governance failures
and the road to crime
Peter Yeoh
School of Law, Communications and Social Sciences,
University of Wolverhampton, Wolverhampton, UK
Abstract
Purpose – The purpose of this paper is to provide enhanced insights on corporate governance failures
which contributed to various nancial crimes in major banking institutions and whether those involved
have been held sufciently accountable in the USA and the UK.
Design/methodology/approach – This interdisciplinary doctrinal research relies on primary and
secondary data and is complemented by the case study approach.
Findings – Case insights demonstrate that a few major banks and isolated numbers of bankers at
the lower echelons were held accountable in the USA but to a lesser degree in the UK. This contrasts
sharply with the earlier Enron-type corporate nancial reporting scandals or the much earlier
Savings and Loans Crisis; but recent criminal charge practices against mega banks suggest a
policy shift.
Research limitations/implications – The paper ndings suggest the need for further research in
this under-researched area, while the banking communities in the USA and the UK may be prompted to
review their corporate governance practices.
Originality/value – This interdisciplinary research uses corporate law and criminological research to
provide enhanced insights on nancial crimes perpetuated in major banks in the USA and the UK.
Keywords Crisis, Regulation, Global nancial crisis, Financial crimes, Banking crisis,
White collar crime
Paper type Research paper
1. Introduction
The attribution of the global nancial crisis (GFC) to banks’ excessive leverage, lack of
capital, scarcity of on-hand liquidity reserves have now been increasingly viewed as
symptoms of the underlying failure of risk management and over condence (Docherty
and Viort, 2013). This view has been consolidated and expanded upon (Vakkur and
Herrera, 2013;Kirkpatrick, 2009) with the more commonly held view that the nancial
crisis could be signicantly attributed to the defects and failure of corporate governance
practices by the key players in the nancial services sectors in particular; aside from
legal and regulatory failures (Tomasic, 2011;Chiu, 2010). For instance, executive
compensation schemes induced extreme risk-taking without punishing failures while
focusing on short-term interests without aligning with the long view of risk.
These incentives when not curb by top management in the nancial rms contributed to
the checks and balances at each level of the corporate hierarchy to collapse (Rajan, 2010).
The central theme of corporate governance failure in the nancial services sector
currently appears to be the more popular version on the causes of the GFC and, in
particular, that radiating from the USA and UK epicentres (Chiu, 2014). This failure
helped to contribute in the USA some US$20 trillion in lost wealth in the capital market,
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
JFC
23,1
216
Journalof Financial Crime
Vol.23 No. 1, 2016
pp.216-230
©Emerald Group Publishing Limited
1359-0790
DOI 10.1108/JFC-10-2014-0044

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