A new review of Disorganized Crimes has just been published under this title in the “CFAInstitute” magazine that highlights the dilemmas of achieving shareholder satisfying corporate governance under the current regulatory requirements governing Boards of Directors. http://www.cfapubs.org/doi/abs/10.2469/cfm.v25.n3.9
clicking the link or pasting it into your browser should bring up the pdf of the review. Enjoy.
Category Archives: Book Reviews
How to Fix What is Fundamentally Wrong with Corporate Culture Worldwide, February 2, 2014 By Marcher
This review is from:Disorganized Crimes: Why Corporate Governance and Government Intervention Failed, and What We Can Do About It (Kindle Edition) available athttp://www.amazon.com/Disorganized-Crimes-Governance-Government-Intervention/product-reviews/1137330260/ref=sr_1_1_cm_cr_acr_txtie=UTF8&showViewpoints=1
Organized crime is a systematic, directed enterprise to break the law. Disorganized crimes arise when incentives are so perverse and legal structures are so misaligned that damage far greater than that from organized crime arises without any concerted effort. Disorganized crimes defraud shareholders and ultimately threaten the foundation of our capitalist structure.
Bernie Munk starts with the corporate frauds of Enron and Worldcom, noting that option based compensation created powerful incentives to manage earnings and ultimately enter into massive accounting fraud. This was aided and abetted by an uninformed and compliant board of directors. Munk notes, Too often, however, directors are celebrants, not investigators, cheerleaders as opposed to watchdogs.
Bernie Munk starts with the corporate frauds of Enron and Worldcom, noting that option based compensation created powerful incentives to manage earnings and ultimately enter into massive accounting fraud. This was aided and abetted by an uninformed and compliant board of directors. Munk notes, Too often, however, directors are celebrants, not investigators, cheerleaders as opposed to watchdogs.
Before the ink was dry on comments about these scandals, the financial crisis began in 2007. Far from being a random macroeconomic shock, Munk argues persuasively that it was a logical extension of the same type of behavior that produced Enron. Excesses, warped incentives and bad governance was everywhere in the financial services industry, and given that the problems affected the largest banks in the world, the ultimate impact threatened the entire system
The book is compelling throughout, but Chapter 6 is worth the price of admission on its own. In it the basic agency problem that conflicts management is discussed, and why option based compensation isnt the solution many hoped it would be. To many readers the idea of risk adjusted earnings will be a revelation, but it lies at the heart of why the system is currently broken.
Readers looking for another moralistic tome bemoaning the evils of a greedy society should look elsewhere. Munk brings a seasoned economists discipline to dissect bad incentives and recommend change. Chapter 14 provides a healthy agenda of what could be done to address these business and governance issues. None of these changes will be easy as they challenge decades of corporate practice and legal structures, but if our capitalist society has a chance of solving its problems itself rather than wait for some ineffectual government meddling this is an agenda that should be embraced.
A Dubious Legacy
A Dubious Legacy–a review fromDirectors & BoardsVol. 38 No.2-First Quarter 2013
FromDisorganized Crimesby Bernard E. Munk. Copyright 2013 by the author. Published by Palgrave Macmillan (www.palgrave.com).
Corporate governance is deeply embedded and dependent upon our system of political governance. We must realize that no governance system can prevent all crime. There will always be individuals and groups who test the limits of any system. We should not assume that the prevention of all crimes, economic or otherwise, is without cost or even a desirable metric for success. There is a continuing need to balance between the costs of preventing crimes and the actual cost of crime. Disorganized crimes arising from corporate governance failures are crimes nonetheless but the same cost/benefit principle applies. It is always a comparison of risk versus return.
Our legislative and policy responses have tried to regulate behavior that is extremely difficult to control and tointervene when the authorities deem it too dangerous not to intervene. That is an arbitrary and difficult policy path to implement. Intervention has been done in an unpredictable manner. We have become reliant on unclear authority and moved away from understandable and relatively fixed rules. That makes it difficult for market participants to respond in a predictable manner and surely it will be a source of future instability and further corporate misgovernance. In many ways, we have ignored holes in our corporate governance system that could be repaired and instead have come to depend on an ad hoc set of government interventions to fix a crisis. That has left an uncertain legacy for policy making in the future.
Bernard Munkfounded and operated several companies in the agricultural and energy industries and headed a financial advisory firm. He is a senior fellow at the Foreign Policy Research Institute. The book’s website iswww.disorganizedcrimes.net.