Weak corporate governance and $1.5 trillion of investment losses

Abstract

Weak corporate governance facilitated over $1.5 trillion in investment losses in the 21st Century in just 17 primarily U.S. public companies. Sir David Tweedy, the former chair of the International Accounting Standards Board, has commented: “The scandals that we have seen in recent years are often attributed to accounting although, in fact, I think the U.S. cases are corporate governance scandals involving fraud” (Tweedy, 2007). Thirteen prominent U.S. business leaders from industry, asset management firms, and an activist investment firm secretly worked for one year to develop corporate governance principles that would become a pathway for the future. The importance of implementing good corporate governance principles, as developed by this committee in 2016, is stressed by these $1.5 trillion of investment losses. This paper has developed lessons learned from these scandals which reinforce these corporate governance principles as a pathway to avoid such malpractices in the future. Attention should be particularly paid to the violations of two critical principles which amassed the majority of these investment losses: Principle I. Board of Directors – Composition and Internal Governance, especially Composition and Independence and Director Effectiveness, and Principle IV. Public Reporting, especially Transparency and Non-Generally Accepted Accounting Principles.