Chapter 4 addresses governance and the financial crisis. Successful firms had strong CEOs who invited constructive dialogue, from the board of directors, their management team, and their risk officers. Good communications were essential for success. The chapter quotes a gentleman at a successful company who said proudly, “the CEO often asks my opinion on major issues,” and then added, “but he asks 200 other people their opinions too.” Unsuccessful firms often had dominant CEOs, weak boards, and risk managers that they disregarded. Unsuccessful firms were unequipped to deal with early warning signs that the mortgage market was weakening. Their leaders did not seem to have access to feedback so that they would ask and reflect on simple questions that could have raised warning flags. Problems were compounded by compensation systems that emphasized short-term rather than long-term financial performance.
Keywords: board of directors; feedback; compensation; mortgage market; risk officers; constructive dialogue; early warning signs
Chapter. 12137 words.
Subjects: Financial Markets
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