Description
Nearly seventy years after the last great stock market bubble and crash, another
bubble emerged and burst, despite a thick layer of regulation designed since the 1930s to
prevent such things. This time the bubble was enormous, reflecting nearly twenty years of
double-digit stock market growth, and its bursting had painful consequence. The search for
culprits soon began, and many were discovered, including not only a number of overreaching
corporations, but also their auditors, investment bankers, lawyers and indeed, their
investors. In Governing the Modern Corporation , Smith and Walter analyze the structure of
market capitalism to see what went wrong. L They begin by examining the developments that
have made modern financial markets--now capitalized globally at about $70 trillion--so
enormous, so volatile and such a source of wealth (and temptation) for all players. Then
they report on the evolving role and function of the business corporation, the duties of
its officers and directors and the power of its Chief Executive Officer who seeks to
manage the company to achieve as favorable a stock price as possible. L They next turn to
the investing market itself, which comprises mainly financial institutions that own about
two-thirds of all American stocks and trade about 90% of these stocks. These investors are
well informed, highly trained professionals capable of making intelligent investment
decisions on behalf of their clients, yet the best and brightest ultimately succumbed to
the bubble and failed to carry out an appropriate governance role. L In what follows, the
roles and business practices of the principal financial intermediaries--notably auditors
and bankers--are examined in detail. All, corporations, investors and intermediaries, are
found to have been infected by deep-seated conflicts of interest, which add significant
agency costs to the free-market system. The imperfect, politicized role of the regulators
is also explored, with disappointing results. The entire system is seen to have been
compromised by a variety of bacteria that crept in, little by little, over the years and
were virtually invisible during the bubble years.L These issues are now being addressed,
in part by new regulation, in part by prosecutions and class action lawsuits, and in part
by market forces responding to revelations of misconduct. But the authors note that all of
the market's professional players--executives, investors, experts and intermediaries
themselves--carry fiduciary obligations to the shareholders, clients, and investors whom
they represent. More has to be done to find ways for these fiduciaries to be held
accountable for the correct discharge of their duties.
Readership: Finance/business academics, corporate governance
professionals, businessmen and women, undergraduate and graduate business students.
Contents
Preface
Part I: Corporations and Capital Markets in Perspective
Preface
1. Irrational Exuberance
2. New Financial Markets
Part II: Corporations and their Governances
Preface
3. Legacies of the Corporation
4. The Role and Duties of Corporate Directors
5. Evolution and Powers of the CEO
Part III: Corporate Governance and the Capital Market Institutions
Preface
6. Institutional Investors
7. The Auditors
8. The Bankers
Part IV. Governance, Restraints and Conflicts of Interest
Preface
9. Government Regulation and Corporate Governance
10. Conflicts of Interest
11. The Future of Governance
336 pages, 7 line illus., 6-1/8 x 9-1/4 mm Hardback
Authors, editors, and contributors
Roy C. Smith, Kenneth Langone Professor of Finance and Entrepreneurship, Stern School of
Business, New York University and
Ingo Walter, Seymour Milstein Professor of Finance, Corporate Governance and Ethics, Stern
School of Business, New York University