The financial crisis

The role of analysts in the development of the financial crisis and deterioration of the corporate governance can hardly be underestimated. In fact, specialists (Zandi, 114) argue that analysts irresponsibly were hyping internet stocks. Analysts were traditionally performing the function of the third party, which could assess accurately the development of many organizations and their financial performance. As the matter of fact, it was the analysts, who were responsible for the analysis of the development of financial markets and economy at large. Analysts conducted the in-depth analysis of different industries and markets and it was on the ground of their analysis investors could make their decisions concerning the investment of their money in certain companies or industries. Analysts helped investors and shareholders to assess the financial performance of corporations and to forecast the development of industries and markets. However, it is obvious, if analysts fail to assess accurately the current situation in certain industry or market, their conclusions will be misleading. At this point, it is important to place emphasis on the fact that the accuracy of the financial assessment and conclusions made by analysts define, to a significant extent, the effectiveness of investments and successful business development. Obviously, investors and shareholders cannot make effective decision, if they do not have accurate information. Therefore, the effectiveness of the work of analysts and their failure to conduct the analysis accurately and effectively resulted in the consistent deterioration of the effectiveness of the corporate governance and led to the deep financial crisis which affected the entire national economy and, later, spread worldwide.
In such a way, the corporate governance failed because of the poor and irresponsible actions of top executives, who preferred to pilfer from their organizations, accountants, who covered top executives and hided the poor financial performance of their organizations, and the inaccurate analysis being conducted by analysts. As a result, the public and investors were unaware of the real situation in the housing industry as well as in other industries. The public and investors could not assess adequately the development of industries and the national economy. As a result, when the truth became obvious, the financial crisis has struck and provoked the deep economic recession affecting the entire national economy and spreading internationally.
At the same time, it was not the mere irresponsibility of top executives, accountants and analysts that undermined the corporate governance and led to the financial crisis, but it was a number of problems, which provoked the financial crisis resulting from the poor corporate governance. In this regard, it is possible to distinguish several key problems that emerged in the four major fields: corporate risk management, pay and bonuses, the performance of board directors, and the need for shareholders to be more proactive in their role as owners. These fields had proved to be crucial for the corporate governance and they had provoked the financial crisis as many companies had proved to be unable to maintain their steady organizational performance and to tackle their financial problems successfully.
In fact, the corporate risk management is one of the major concerns of the corporate governance. However, on analyzing the corporate governance being conducted before the financial crisis and the economic recession, it is possible to estimate that they failed to conduct effectively their risk management. In such a way, the risk management was ineffective and failed to prevent corporations from the adequate assessment of organizational performance and the financial position of organizations. In fact, the risk management defines the development of business and strategies conducted by corporations. In such a way, the risk management was an important factor that led to the failure of the corporate governance to prevent the financial crisis. What is meant here is the fact that the risk management normally aims at the prevention of the emergence of threats and risks that may affect business negatively. The poor risk management being conducted by the contemporary corporate governance led to the underestimation of existing risks and assessment, whereas along with unethical and ineffective policies and practices being conducted by top executives, accountants, and analysts, resulted in the profound financial crisis because the real situation in different industries and the national economy was underestimated and risks and threats emerged fast. Corporations came unprepared to cope with risks and threats because of the failure of the corporate risk management to assess and forecast risks and threats that could and did undermine the financial performance of organizations. In such a way, the financial crisis revealed the ineffectiveness of the corporate governance in terms of the risk management and forecasting the marketing development of organizations in regard to possible risks and threats that they could have faced.
Another important cause of financial crisis associated with the poor corporate governance was pay and bonuses. To put it more precisely, top executives received exorbitant payments and bonuses compared to average managers and employees. Their payments and bonuses were not proportional to their contribution to the organizational performance. In addition, they were pilfering from their organizations to earn even more that also contributed to the deterioration of the organizational performance, negative financial performance and the widening gap between top executives and the rest of professionals working in corporations. At this point, it is worth mentioning the fact that such policies undermined the organizational culture and affected the organizational performance consistently, because employees and average managers were dissatisfied with their position in their organizations and they were not motivated to work better, whereas top executives could and did earn a lot of money. Moreover, it is important to place emphasis on the fact that the earnings and bonuses of top executives were high, regardless of the organizational performance. This means that whether corporations performed well or bad, top executives still earned a lot of money and they did not feel any financial losses or difficulties, even if their corporations failed to perform successfully. As a result, top executives were uninterested in the successful performance of their corporations being certain in their high earnings. To put it in simple words, top executives’ well-being did not depend on the well-being of their corporations. As a result, they were not motivated to work better or to improve the organizational performance because they earned enough, even in case of the poor organizational performance. At the same time, subordinates of top executives and average managers and employees were also discouraged to work better because they felt that the existing system of payments and bonuses is unfair. They would not receive as much as top executives and their earnings would not match their contribution to the organizational performance. Therefore, they deteriorated their performance that steadily deteriorated the organizational performance. In such a situation, the inability of the corporate governance to set the adequate and fair payments and bonuses resulted in the financial crisis because both top executives and managers and employees were discouraged to work better and to improve the organizational performance.
At this point, the performance of board directors was another factor that aggravated the corporate governance and provoked the profound financial crisis. To put it more precisely, the performance of board directors was ineffective because directors were more concerned with the protection of their own interests, regardless of interests of corporations. At the same time, it is worth mentioning the fact that the development of corporate governance contributed to the losing control from the part of shareholders over the work of board directors. Board directors felt being secure and independent of the shareholders. As a result, top executives could manage large corporations according to their needs and interests. In fact, the performance of board directors was ineffective because of the wide gap between board of directors and the actual organizational performance. Wide gaps between different levels of the organizational structure undermined the organizational performance and led to the profound economic crisis.
Finally, the need for shareholders to be more proactive in their role as owners is another factor that should be taken into consideration by the corporate governance. However, the corporate governance failed to take into consideration interests of shareholders, whereas shareholders failed to maintain the effective control over the policies and decisions being conducted and taken by top executives. In this regard, it is worth mentioning the fact that shareholders turn out to be out of control over the organizational development and they failed to failed to influence policies conducted by board directors. As a result, shareholders invested money but they were unable to control how they were used, whereas top executives focused on their own benefits instead of interests and benefits or organizations.
Thus, taking into account all above mentioned, it is important to place emphasis on the fact that the corporate governance failed to prevent the financial crisis. Moreover, it was the corporate governance that was, to a significant extent, responsible for the development of the financial crisis. The corporate governance was ineffective, top executives were concerned with their personal interests, instead of interests of their organizations, accountants and analysts helped them to misinform the public and investors of the financial performance of organizations. As a result, the financial crisis had struck.

Works Cited
Kim and Nofsinger. Corporate Governance. Pearson-Prentice Hall, 3rd edition 2010.
Zandi, Mark. Financial Shock (Updated Edition), (Paperback): Global Panic and Government Bailouts. How We Got Here and What Must Be Done to Fix It, Financial Times/ Prentice Hall, 2nd edition, 2009.