A European Perspective on the Global Financial Crisis

• Published date: 01 September 2011
• Author: Erik Berglof
• DOI: http://doi.org/10.1111/j.1467-8683.2011.00872.x
• Date: 01 September 2011

Commentaries

A European Perspective on the Global

Financial Crisis

Erik Berglof

Chief Economist, European Bank for Reconstruction & Development

Let me begin by discussing Richard Fuld, the CEO of

Lehman Brothers at its demise. I was told that he used to

come here to Wharton quite often to speak, and he managed

to attract many graduates to his f‌irm. He is probably coming

less frequently these days and if he were to show up he

probably would f‌ind it more diff‌icult to recruit. Let us leave

him and his institution for the moment, but he has come to

symbolize a system of corporate governance characterized

by Mark Roe (1996) as “Strong Managers – Weak Owners.”

Many observers have attributed the global f‌inancial crisis, in

particular the subprime mortgage debacle, to these features

of the US f‌inancial system. Yet banks in systems with other

dominant corporate governance pattern also ran into diff‌i-

culty in the crisis. More generally, as I will describe in my

brief account of the post-crisis literature, a f‌irst round of

research has not managed to establish a clear link between

various measures of corporate governance and performance

at the level of individual banks in the crisis.

The notion that there was no corporate governance failure

behind the rise and fall of Richard Fuld and his organization

f‌lies in the face of popular accounts and the strong percep-

tion most observers have of the behavior of many f‌inancial

institutions and indeed many non-f‌inancial corporations in

the period leading up to the Lehmann bankruptcy. Was cor-

porate governance really not important or is it that the way

we conceptualize and measure corporate governance does

not capture its relevance? If indeed there is a link between

corporate governance and the f‌inancial crisis, is that at the

level of the individual f‌irm or in the broader corporate gov-

ernance system of a particular economy?

In this brief lecture I will suggest some directions in

which we may extend the current framework to hopefully

better capture corporate governance failures in individual

f‌irms and in individual systems. Preparing offered a

welcome opportunity to again immerse myself in research.

Over the last f‌ive years my time has been devoted to

development banking and crisis coordination. Unfortu-

nately, there has not been much time to follow, let alone to

actively contribute to, research on corporate governance.

As I have tried to reconstruct what has happened in the

academic world over the last f‌ive years I am sure that there

are many contributions and nuances that I have missed.

Hopefully though, my recent experience can bring some-

thing new to the table.

In diving back into the literature, I was struck by how

much more humble the profession has become in its view on

cross-country differences compared to just f‌ive years ago.

This is a part of a more general trend to consider data that is

not from the United States and the more open attitude that

comes with exposure to broader experience. When I did my

Ph.D., students were warned not to use non-US data because

“you would not get published.” Some of this bias is still

present, but the openness to consider a broader empirical

reality is much greater. Corporate governance research, in

particular, is so much richer for it.

The greater awareness of the international differences in

corporate governance has also made the profession more

open to alternative hypotheses and frameworks. More fun-

damentally, we are much less sure today, even in the United

States, about what is the best corporate governance for a

particular f‌irm and what is the best corporate governance

system at the country level – and how these two levels of

corporate governance interact.

Let me give you a sense of the outline of my talk. I will

start by providing you with some conceptual background

against which we can discuss corporate governance and its

potential impact, if any, on the f‌inancial crisis and its after-

math. My presentation primarily uses Europe, both Western

and Eastern Europe, as the main laboratory for learning

about corporate governance and its role in the f‌inancial

crisis. Finally, I am going to look more closelyat what lessons

we have learned and have not learned so far from the global

crisis – and how the crisis is likely to affect corporate gover-

nance in research and in practice in the future.

497

Corporate Governance: An International Review, 2011, 19(5): 497–501

© 2011 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2011.00872.x