The collapse of large financial institutions and firms in the last few years has once again put corporate governance at the center of the controversy about why this happened and what role ineffective corporate governance played in the debacle (think Lehman, AIG, Citigroup, and GM, and many others, both in the U.S. and other countries). Where were the boards of directors when these firms developed the risk-taking strategies that ultimately resulted in their demise? What are directors supposed to be doing? Why didn’t they rein in the risks that some managers were taking, like those at AIG? What, in fact, are the legal responsibilities of managers and directors, and who determines this? What about the owners of the firms – the stockholders? Why did they sit passively by as firms lost most of their money? What are the legal rights of shareholders if they do not like what is going on in the firms they own? And what about the credit rating agencies, banks, auditors, and the regulators who all in one way or another effectively vouched for the pervasive AAA-rated securities issued by the ill-fated firms to finance their risk-taking activities? None of this was supposed to happen, but it did.
Legislative, regulatory and industry initiatives for changing corporate governance laws and practices are currently under consideration in most major countries. Major firms themselves also are under pressure to rethink how they go about making major decisions and setting firm strategy, about how they can more effectively interact with their shareholders, and how they can better monitor and evaluate management. There could not be a better time to learn about the institutions, laws, and practices that make corporate governance an essential component of the successful business firm, and to become an informed participant in the debate about whether new laws and restrictions are needed to make corporate governance more effective in the future, and, if so, what these should be.
Readings and assignments for each class can be found in the course Readings and Case Book (Parts I and II) which is available to all registered students. Readings for Class 1 also are posted on the ANGEL course site. Course grades are based on the midterm and final exams (30 and 50 percent respectively) and on class participation and specific class assignments (20 percent).
Arthur F. Burns Professor Emeritus of Free and Competitive Enterprise
Professor Edwards is a specialist in financial markets and institutions, financial regulation and derivatives markets. He teaches courses on futures markets and contemporary issues in financial markets. Edwards has written dozens of books and articles on topics in banking, financial markets and derivatives, including a textbook, Futures and Options. In his recent book, the New Finance: Regulations and Financial Stability,