The Corporate Governance Movement, Banks, and the Financial Crisis

Abstract

This Article discusses why a “corporate governance movement” that commenced in the United States in the 1970s became an entrenched feature of American capitalism and describes how the chronology differed in a potentially crucial way for banks. The Article explains corporate governance’s emergence and staying power by reference to changing market conditions and a deregulation trend that provided executives with unprecedented managerial discretion as the twentieth century drew to a close. With banking the historical pattern paralleled general trends in large measure. Still, while the “imperial” CEO who achieved prominence in the 1980s became outmoded for the most part after corporate scandals at the start of the 2000s, this was not the case with large fiancial companies. The continued boldness of “star” CEOs in the fiancial services industry plausibly contributed to the market turmoil of 2008, but the fiancial crisis emphatically ended the corporate governance “free pass” banks had enjoyed.