Identify failings in corporate governance that contributed to the financial crisis

The recent economic crisis has revealed a number of drawbacks in the contemporary corporate governance. In actuality, the corporate governance plays an important part in functioning of the largest corporations. In fact, the corporate governance defines the development of behemoths of the contemporary economy because the effectiveness of the corporate governance allows companies to develop their business steadily. However, the contemporary corporate governance has a number of drawbacks, which can undermine the functioning of the largest corporations, including the most successful and seemingly stable corporations, like Enron or GE. In this regard, the analysis of the corporate governance and its pitfalls is essential for understanding roots of the recent economic crisis because it was the failure of the corporate governance of the largest companies and the general ineffectiveness and failure of the corporate governance in housing and banking industries that was the major causes of the financial crisis that stroke the US and spread worldwide. In actuality, it is possible to distinguish the unfair policies conducted by executives in relation to their companies, the schemes developed by accountants to smooth the financial results of their companies, in spite of the consistent deterioration of their real financial performance, irresponsible actions of analysts among the major drawbacks of the contemporary corporate governance as well as many other issues that have led to the failure of the corporate governance and the financial crisis that stroke the US and other countries of the world.
On analyzing the contemporary corporate governance, it is worth mentioning the fact that the corporate governance presumes to conduct responsible policies. Many companies insist on the importance of developing their business and corporate governance responsibly on the ground of business ethics. The respect to business ethics is one of the essential conditions of the effective corporate governance. In this regard, many companies pretend to agree on conducting their business ethically. However, often the corporate governance confronts the problem of the unethical behavior, especially from the part of top executives of large corporations. In such a way, the corporate governance faces the problem of the split between the declared focus on business ethics and responsible policies, on the one hand, and unethical policies being conducted in actuality, on the other.
At this point, it is important to place emphasis on the fact that business ethics is not just the matter of a positive public image of corporations but it is the matter of the effective and steady development of business and the economy at large. To put it more precisely, the failure of the corporate governance to conduct business ethically and responsibly undermines the confidence of customers as well as professionals working in different industries in the contemporary business environment. What is meant here is the fact that both businesses and customers need to be confident that companies conduct their business ethically. The trust and confidence are very important in the contemporary business environment because without trust and confidence companies cannot rely on their business partners, whereas customers cannot be confident in the reliability of the companies where they buy products or services from. As a result, the failure of the contemporary corporate governance to conduct the business ethically undermine the confidence of customers and shareholders in the corporate governance that aggravated the situation in the economy and raised substantial barriers for the further business development.
At the same time, many specialists (Kim and Nofsinger 188) argue that one of the major cause of the failure of the corporate governance and consistent deterioration in the organizational performance of many companies and the following economic recession was unfair policies being conducted by top executives. To put it more precisely, some executives were pilfering from their firms that led to the consistent deterioration of their financial position and provoked their ruin and bankruptcy. In such a way, top executives were just robbing their companies instead of managing them effectively and maintaining their positive organizational performance. At this point, it is important to place emphasis on the fact that top executives were and still often are more concerned with their personal interests and needs, whereas needs and interests of their corporations are secondary for them. However, it is obvious that the effective business development and corporate governance is possible only on the condition of taking into consideration interests and needs of corporations as being prior to personal interests of top executives. In fact, top executives’ earnings are enormous compared to other managers and employees working in corporations. Nevertheless, many top executives still attempt to increase their profits even more pilfering from their corporations. In such a way, they focus on their personal well-being ignoring needs and interests of their corporations. In such a way, the corporate governance becomes ineffective because top executives of corporations look for options to earn more even though their pilfering may put their corporations on the edge of bankruptcy. At this point, it is possible to refer to such notorious cases as Enron or GE. In fact, the position of top executives is extremely important for the effective corporate finance. Therefore, unethical policies being conducted by top executives are destructive for the corporate governance and they led to the consistent deterioration of many companies, whereas eventually the failure of top executives to focus on needs of their organizations, instead of their personal needs and interests, resulted in the profound financial crisis.
At the same time, it is obvious that top executives could not conduct their unfair policies and scheme successfully without the assistance of accountants. To put it more precisely, accountants helped their firms to doctor their financial numbers. What is meant here is the fact that schemes of top executives naturally provoked substantial financial gaps in the performance of corporations. Even though the financial gaps caused by pilfering from the part of top executives could be not very substantial in terms of the overall financial performance, still financial gaps caused by their activities needed to be covered and accountants helped top executives to hide their schemes and manipulation with organizational funds. In such a way, accountants used different methods and schemes to hide the financial losses provoked by top executives.
At the same time, accountant were also responsible for the inaccurate representation of the financial performance of their organizations to shareholders and the public. What is meant here is the fact that, depending on the accountant approaches applied by accountants, the financial performance of corporations can be presented in different ways. Therefore, accountants could present the financial position of their corporations better than it really was. As a result, the public and investors could not assess accurately the financial position of corporations and their performance. In this regard, the public and investors believed that the financial performance of large corporations was stable, whereas, in actuality, some large organizations could and were stagnating and they were facing substantial financial problems. In such a way, accountants misled the public and investors, whereas the inadequate representation of the financial performance of the organization naturally undermines the situation in the industry and economy at large. Hence, the housing market emerged due, to a significant extent, to accountants, who misled the public and investors to the point, when investors could not benefit from purchasing real estate anymore, whereas bank loans became unaffordable for individuals and organizations. As a result, when the truth about the financial position of many organizations became obvious and the real situation in the housing market was revealed, the deep financial crisis had struck.