**7. Corporate Governance after 2008 global crisis**

This collapse was spread around the world as bank system is interlinked, turning to be a global credit crisis. Nationalization and public rescue programs were replicated in Europe in order to protect financial system (see [9]). Financial stability depended on taxpayers and probably the extension of social impacts of increasing public debt was not been measured

Carlyle Group, Bearn Sterns, Lehman Brothers, AIG, Merril Lynch, Wells Fargo and many others, were directly involved on this crisis. The Madoff case, however, was pretty different. It was a corporate fraud like others of 1990s that survived longer as its distinction was that there was no transaction at all, no business. SEC received six complaints against Madoff between 1992 and 1998 [90, 91], which raised many red flags [92]. Notwithstanding, Madoff Ponzi scheme was only broke out when investors started to demand their money back as they were losing with credit crunch in other investments. Only in 2008 investors took of US\$ 12 billion from Madoff's fund, and this led to the collapse of it. The Madoff case turned explicit how

One of the important responses was The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 [94]. This Act finally imposed some regulation back over financial market. Among recommendations, Federal Reserve should supervise any company that gets too big to fail. The consequence was the increase of its reserve requirement. President Trump has announced that this increased reserve drained financial resources from banks and decreased

The Volcker rule prohibited banks from using hedge funds in its behalf and determines 7 years to bank get out of hedge fund business. Banks lobbies were successful in delaying this

The Act required that risky derivatives like CDS be regulated and all hedge funds and other advisors as well. All of them must be registered with the SEC. It created an Office of Credit Ratings at the SEC in order to oversee rating agencies, with the power to require methodolo-

It created the Consumer Financial Protection Bureau under U.S. Treasury Department to assure that homeowners be aware of risky mortgage loans, to oversees and regulates credit activity, and also require banks to verify borrower's income, credit history and job status. Banks and funds in 2008 crisis overlooked all of this information. As it depends on public budget, it is easy to relax the enforcements on it. Under the same U.S. Treasury Department the Act created a Federal Insurance Office in order to increase supervision of insurance com-

Finally, the Act gave power to the Government Accountability Office to audit Fed's emergency loans like that in financial crisis and required that The Treasury Department approve any other emergency loan given by the FED. This was a response to protect taxpayers from

approval (only in 2013), and new pressures can decrease enforcement by regulators.

panies, mainly over those that create a risk for entire system, like AIG.

feeder funds activities were so unregulated [9, 93].

42 Corporate Governance and Strategic Decision Making

their competitiveness.

gies and deregister them.

new financial folly.

yet.

After the great shock, corporate governance is still considered important by shareholders and investors particularly during times of financial trouble [4, 95].

The OECD report on financial crisis in 2010 pointed out the weaknesses in corporate governance that contributed to financial crisis. They run about the lack of risk assessment and disclosure, high-risk exposure, lack of financial experience among board members and remuneration still linked to short term gains [96].

It reinforces the responsibility of boards on executive remuneration definition, on the establishment of an explicit governance process that defines the role and duties of compensation consultants and on making this process transparent. It is important to note that those consultants were not so independent as expected and were too closed to managers since 1990s.

It states that risk management should consider compensation and incentive systems, and its process and assessment about its effectiveness should be disclosure. This theme is a direct result of credit crisis.

It recommends that internal control functions report directly to audit committee and risk management directly to the board. SOX and SEC required some improvements on internal control, but this recommendation addresses the responsibilities over processes.

Board structure, composition and working practices have being related to good governance and avoidance of frauds. This report considers that these characteristics can vary depending on complexity of business and so they need to be adequate to it.

For those companies that are subject to supervision, this report recommends that this include issues regarding to skills and competence of board members related to general governance and risk management. Assessment of independence and objectivity of board members could include the length of time members serve under the same CEO. The lack of competence and financial skills was pointed as an important factor in 2000–2008 crises as board members overlooked some important red flags and did not do the right questions about business (e.g. [21]).

Finally, it recommends the need to improve the exercise of shareholder rights, especially institutional shareholders that figured as important victims in financial crisis.

Sharing this diagnose, UK and US regulators took some steps to encourage banks to improve its culture by governance and added regulatory enhancements to financial supervisory regime in name of global financial stability. Although the UK and the US are too different, they converged on ideas to increase penalties to failures and to change focus from interest of shareholders over all other stakeholders to interest of clients [97].

The OECD non-biding principles of Corporate Governance were revised in 2004 after 2000 scandals and in 2010 after credit crunch. From 1999 version, it was included an item to help companies to enhance the effectiveness of corporate governance framework.

In 2004, this item stated: "The corporate governance framework should **promote transparent and efficient markets**, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities" [p. 17]. It follows with some recommendations to do it. In the 2010 version it states: "The corporate governance framework should **promote transparent and fair markets, and the efficient allocation of resources**. (…)" [p. 13]. All elements of 2004 were repeated here to help jurisdiction in articulating legal, institutional and regulatory framework that affect corporate governance. The subtle substitution of *efficient market* to *fair market and efficient allocation of resources* addresses to concerns on focusing only shareholders over other stakeholders before 2008 crisis. The new concern should be on global financial stability. Specifically, it added a sub item related to stock market regulation that should set standards, supervision and required enforcement of corporate governance rules. Other sub-item was added related to the importance of international co-operation among regulators in providing arrangements for exchange of information. The 2010 version also explicit the *comply or explain* principle as a recommendation to jurisdictions in its implementation arrangements. This enhances enforcements.

Other detachments were made in function of its importance change. The sub-item related to institutional investors was detached in 2010 and states that they should disclosure their corporate governance policies and consider other forms of shareholder engagement. Another detachment relates to information about board members, including their qualifications, the selection process, other company directorships and whether they are regarded as independent by the board. This sub item was within remuneration theme in 2004.

In synthesis, the main items of OECD 2010 are: (a) ensuring the basis for an effective corporate governance framework; (b) the rights and equitable treatment of shareholders and key ownership functions; (c) institutional investors, stock markets, and other intermediaries; (d) the role of stakeholders in corporate governance; (e) disclosure and transparency; and (f) the responsibilities of the board.

Legal and regulatory apparatus and corporate governance codes around the world were adjusted to the main aspects related to frauds and scandals in financial crises. As cultural, economic and legal arrangements are different among countries, the degree of enforcement can also be different. The last financial crisis showed that restrictions would be bypassed if there is a huge economic interest in game.

Corporate governance is important to govern in shaping its legal and regulatory frameworks, incorporating governance requirements. It is important to drive shareholders and stakeholders in arising the right questions about business. If they have skills to do it, if they want to do it or are sensitive to impression management that cloud their mind, this is out of reach of all these frameworks.

A global survey on governance conducted by McKinsey in 2011, unfortunately did not present a better result than the previous one in 2008. Boards have not increased time spending to discuss company's strategy, and 44% simply review and approve companies proposed strategies [98]. The main findings were that some directors have inadequate expertise about business and have no time to more dedication. Delloite's report on risk management added to this discussion the market volatility that has been driven ERM in companies pos-crisis [99].

If these surveys reflect reality abroad, we still have a big problem to face. Probably managers and boards are not applying what was learned from prior crisis in required speedy and intensity.
