BazEkon - The Main Library of the Cracow University of Economics

BazEkon home page

Main menu

Author
Klepczarek Emilia (University of Lodz, Poland)
Title
The Importance of the Board of Directors. Lessons from Lehman's Failure
Source
Ekonomia i Prawo, 2017, t. 16, nr 1, s. 59-73, tab., bibliogr. 49 poz.
Economics and Law
Keyword
Ład korporacyjny, Zarząd, Zarządzanie ryzykiem, Kryzys finansowy
Corporate governance, Board of directors, Risk management, Financial crisis
Note
JEL Classification: G21, G28, G32, G33, G38
summ.
Company
Lehman Brothers
Abstract
Motivation: The effective functioning of the board is usually considered a key factor to minimize conflicts agency. In the literature, the composition of the board, including its size and the fraction of independent members is often pointed out as one of the most important elements determining the effectiveness of its work. The research on the effectiveness of supervision also analyze the activities of board committees, frequency of their meetings, separation of functions Chairman of the Board and CEO and the participation of women. It seems to be an interesting observation that research on the effects of the mentioned factors on the firms performance do not produce clear results. This may lead to a conclusion that one should use some qualitative methods to investigate the corporate governance procedures in the individual entity and work out their possible consequences for the analyzed institution. The case of Lehman Brothers seems to be a good choice for this kind of research as its collapse in 2008 may be found as the evidence for wrong supervision and managing mechanisms. Finding the possible causes of its bankruptcy should give then some guidelines to the proposals of improving the corporate governance systems. Aim: The purpose of this article is to analyze the conditions under which the board the Lehman Brothers performed supervision and find the cause of irregularities in this area. Results: The study shows that one cannot unambiguously state that all the board directors were competent, able to commit enough time for controlling and independent. (original abstract)
Full text
Show
Bibliography
Show
  1. Aebi, V., Sabato, G., & Schmid, M. (2012). Risk Management, Corporate Governance, and Bank Performance in the Financial Crisis, Journal of Banking & Finance, 36(12). doi:10.1016/j.jbankfin.2011.10.020.
  2. Agrawal, A., & Knoeber, C.R. (1996). Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders. The Journal of Financial and Quantitative Analysis, 31(3). doi:10.2307/2331397.
  3. Anderson, R.C., Mansi, S.A., & Reeb, D.M. (2004). Board characteristics, accounting report integrity, and the cost of debt. Journal of Accounting and Economics, 37(3). doi:10.1016/j.jacceco.2004.01.004.
  4. Baliga, R., Moyer, C., & Rao, R. (1996). CEO duality and firm performance: What's the fuss? Strategic Management Journal, 17(1). doi:10.1002/(SICI)1097-0266(199601)17:1<41::AID-SMJ784>3.0.CO;2-%23.
  5. Basel Committee on Banking Supervision. (1999). Core Principles Methodology. Retrieved 11.07.2016 from http://www.bis.org.
  6. Basel Committee on Banking Supervision. (2006). Enhancing corporate governance for banking organizations. Retrieved 11.07.2016 from http://www.bis.org.
  7. Baysinger, D.B., & Butler, H.N. (1985). Corporate Governance and the Board of Directors: Performance Effects of Changes in Board Composition. Journal of Law, Economics, & Organization, 1(1).
  8. Bhagat, S., & Black, B.S. (2000). Board Independence and Long-Term Firm Performance. Columbia Law School, Law & Economics Research Paper Series, 143.
  9. Block, S. (1999). The role of nonaffiliated outside directors in monitoring the firm and the effect on shareholder wealth. Journal of Financial and Strategic Decisions, 12(1).
  10. Börsch-Supan, A., & Köke, J. (2002). An Applied Econometricians' View of Empirical Corporate Governance Studies, German Economic Review, 3(3). doi:10.1111/1468-0475.00061.
  11. Brickley, J.A., Coles, J.L., & Jarrell, G.A. (1997). Corporate Leadership Structure: On The Separation of the Positions of CEO and Chairman of the Board. Simon School of Business Working Paper, FR 95-02.
  12. Campbell, K., & Mínguez-Vera, A. (2007). Gender Diversity in the Boardroom and Firm Financial Performance. Journal of Business Ethics, 83(3). doi:10.1007/s10551-007-9630-y.
  13. Chaganti, R.S., Manajan, V., & Sharma, S. (1985). Corporate Board Size, Composition and Corporate Failures in Retailing Industry. Journal of Management Studies, 22(4). doi:10.1111/j.1467-6486.1985.tb00005.x.
  14. Chan, K. C., & Li, J. (2008). Audit Committee and Firm Value: Evidence on Outside Top Executives as Expert-Independent Directors. Corporate Governance: An International Review, 16(1). doi:10.1111/j.1467-8683.2008.00662.x.
  15. Collins, G., & Osei, K.O. (). The impact of corporate board meetings on corporate performance in South Africa. African Review of Economics and Finance, 2(2).
  16. Committee on Oversight and Government Reform. (2008). The causes and effects of the Lehman Brothers bankruptcy. Retrieved 11.07.2016 from https://www.gpo.gov.
  17. Dahya, J., & Travlos, N. (2000). Does the one man show pay? Theory and evidence on the dual CEO revisited. European Financial Management, 6(1). doi:10.1111/1468-036x.00113.
  18. Dahya, J., Dimitrov, O., & McConnell, J.J. (2008). Dominant shareholders, corporate boards, and corporate value: A cross-country analysis. Journal of Financial Economics, 87(1). doi:10.1016/j.jfineco.2006.10.005.
  19. Daily, C.M., & Dalton, D.R. (1997). Separate, But Not Independent: Board Leadership Structure in Large Corporations. Corporate Governance, 5(3). doi:10.1111/1467-8683.00053.
  20. Dalton, D.R., Daily, C.M., Ellstrand, A.E., & Johnson, J.L. (1998). Meta-Analytic Reviews of Board Composition, Leadership Structure, and Financial Performance. Strategic Management Journal, 19(3). doi:10.1002/(sici)1097-0266(199803)19:3%3C269::aid-smj950%3E3.3.co;2-b.
  21. Darmadi S. (2011). Board Diversity and Firm Performance: The Indonesian Evidence. Corporate Ownership and Control Journal, 1(9).
  22. Desi, I. (2008). Board Quality and Firm Performance: The Case of Indonesia's Listed Companies (Unpublished masters thesis, Universiti Utara, Malaysia).
  23. Duchin, R., Matsusaka, J.G., & Ozbas, O. (2010). When are outside directors effective? Journal of Financial Economics, 96(2). doi:10.1016/j.jfineco.2009.12.004.
  24. Francis, B.B., Hasan, I., & Wu, Q. (2012). Do Corporate Boards Affect Firm Performance? New Evidence from the Financial Crisis. Bank of Finland Research Discussion Paper, 11. doi:10.2139/ssrn.2041194.
  25. Guest, P. (2009). The impact of board size on firm performance: evidence from the UK. The European Journal of Finance, 15(4). doi:10.1080/13518470802466121.
  26. Investment Company Act of 1940. (1940). Retrieved 04.03.2014 from http://www.sec.gov.
  27. Jensen, M.C. (1993). The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems. The Journal of Finance, 48(3). doi:10.2307/2329018.
  28. Krivogorsky, V. (2006). Ownership, board structure, and performance in continental Europe. The International Journal of Accounting, 41(2). doi:10.1016/j.intacc.2006.04.002.
  29. Lehman Brothers Holding (2008). Registration Document from 28 August 2008. Retrieved 11.07.2016 from http://www.bafin.de.
  30. Lehman Brothers Holding. (2007). Registration Document from 28 August 2007. Retrieved 11.07.2016 from http://www.bafin.de.
  31. Mínguez-Vera, A., & Martin, A. (2011). Gender and management on Spanish SMEs: an empirical analysis. The International Journal of Human Resource Management, 22(14). doi:10.1080/09585192.2011.599948.
  32. Nguyen, H., & Faff, R. (2006). Impact of board size and board diversity on firm value: Australian evidence. Corporate Ownership and Control, 4(2).
  33. NYSE. (2003). Corporate governance rules. Retrieved 03.03.2014 from http://www.nyse.com.
  34. Pearce, J.A., & Zahra, S.A. (1992). Board compensation from a strategic contingency perspective. Journal of Management Studies, 29(4). doi:10.1111/j.1467-6486.1992.tb00672.x.
  35. Pi, L., & Timme, S.G. (1993). Corporate control and bank efficiency. Journal of Banking & Finance, 17(2-3). doi:10.1016/0378-4266(93)90050-n.
  36. Post, C., & Byron, K. (2014). Women on Boards and Firm Financial Performance: A Meta-Analysis. Academy of Management Journal, 58(5). doi:10.5465/amj.2013.0319.
  37. Rechner, P.L., & Dalton D.R. (1986). Board Composition and Shareholder Wealth: An Empirical Assessment. International Journal of Management, 3(2).
  38. Schellenger M.H., Wood D.D., & Tashakori A. (1989). Board of Director Composition, Shareholder Wealth, and Dividend Policy. Journal of Management, 15(3). doi:10.1177/014920638901500308.
  39. Shrader, C.B., Blackburn, V.B., & Iles, P. (1997). Women In Management And Firm Financial Performance: An Exploratory Study. Journal of Managerial Issues, 9(3).
  40. Singh, V., Vinnicombe, S., & Johnson, P. (2001). Women Directors on Top UK Boards. Corporate Governance, 9(3). doi:10.1111/1467-8683.00248.
  41. Smith, A. (1954). Badania nad naturą i przyczynami bogactwa narodów. Warszawa: PWE.
  42. United States Securities and Exchange Commission. (2007). Form 8-K, Current report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, Lehman Brothers Holdings Inc. Retrieved 03.03.2014 from https://www.sec.gov.
  43. United States Securities and Exchange Commission. (2008). Schedule 14a Proxy Statement Pursuant To Section14(A) Of The Securities Exchange Act Of 1934, Lehman Brothers Holding Inc., Retrieved 03.03.2014 from https://www.sec.gov.
  44. Vafeas, N. (1999). Board meeting frequency and firm performance. Journal of Financial Economics, 53(1). doi:10.1016/s0304-405x(99)00018-5.
  45. Williams, M.T. (2010). Uncontrolled risk. The lessons of Lehman Brothers and how systemic risk can still bring down the world financial system. New York: McGraw Hill.
  46. Yang, T., & Zhao, S. (2014). CEO duality and firm performance: Evidence from an exogenous shock to the competitive environment. Journal of Banking & Finance, 49. doi:10.1016/j.jbankfin.2014.04.008.
  47. Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40(2). doi:10.1016/0304-405x(95)00844-5.
  48. Zahra S.A., & Stanton W.W. (1988). The Implications of Board of Directors' Composition for Corporate Strategy and Performance. International Journal of Management, 5(2).
  49. Zemzem, A., & Kacem, O. (2014). Risk Management, Board Characteristics and Performance in the Tunisian Lending Institutions. International Journal of Finance & Banking Studies, 3(1), 186. doi:10.20525/ijfbs.v3i1.179.
Cited by
Show
ISSN
1898-2255
Language
eng
URI / DOI
http://dx.doi.org/10.12775/EiP.2017.005
Share on Facebook Share on Twitter Share on Google+ Share on Pinterest Share on LinkedIn Wyślij znajomemu