fund managers should act responsibility and look after their financial assets in an ethically acceptable way.’93 Given that the current financial crisis stems primarily (if not exclusively) from ethical failure, then it necessarily follows that it is only through responsible ownership that effective oversight can return. As noted above, proposals to curtail voting rights risk delivering a suite of unintended consequences, not least of which is a reversal of the work done by the Norwegian Pension Fund – Global to embed integrity in its operating model. Moreover, forcing Sovereign Wealth Funds to abdicate responsibility exacerbates the problem of the separation of ownership and control within individual corporations and undermines the salience of regulatory theory.
appropriate pricing of risk by private actors is It is necessary, however, for the managers, board
arguably a commercial directors and owners of
the providers of structured finance products to crisis of confidence. The seizing of the global
recognise responsibility for a systemic securitisation market demonstrates the
management. As the President of Federal Reserve Bank of New York has pointed out, the ‘conventional risk-management framework today focuses too much on the threat to a firm from its own mistakes and too little on the potential for mistakes to be correlated across firms.’ 94 In somewhat plainer language, the European Commissioner for Internal Markets and Services refers to a toxic cocktail of ‘stupidity,
ignorance [and] misplaced management systems derive
optimism.’ from that the 95
He suggests the failure of internal risk fact that ‘several Chief Executive Officer’s
of large did not
financial institutions have understand many of the
admitted in their more candid moments that they new products that their firms were designing,
was consumed also demonstrates the continuing failure four distinct orders of accountability: legal, managerial,
of controls within and between political and bureaucratic. 97
In the United States, the epicenter of the crisis, formal legal changes to corporate governance practices in the Sarbanes-Oxley Act (2002), passed in the immediate aftermath of the Enron and related financial reporting scandals, offered little more than symbolic reassurance.98 Homogenous application of risk management procedures to attest internal controls – mandated under section 404 of the Act – discounted application of critical thinking within both the corporation and the
Norges Bank Investment Management Annual Report (2007) 4.1
94 T Geithner, ‘Reducing Systemic Risk in a Dynamic Financial System’ (Speech at Economic Club of New York, 9 June 2008).
McCreevy, above n 3. Interview, Brussels, 15 May 2008; see also Volcker, above n 7.
97 B Romsek and M Dubnick, ‘Accountability in the Public Sector: Lessons from the Challenger Tragedy’ (1987) 47 Public Administration Review 227; for application of accountability model to corporate sector, see M Dubnick, ‘Sarbanes-Oxley and the Search for Accountable Corporate Governance’ in J O’Brien (ed), Private Equity, Corporate Governance and the Dynamics of Capital Market Governance (2007) 265, 284-288.
98 M Edelman, The Symbolic Uses of Politics (1964); for application of ‘symbolic lens’ to Sarbanes- Oxley, see J O’Brien, Redesigning Financial Regulation, The Politics of Enforcement (2007); see also Dubnick, ‘Sarbanes Oxley and the Search for Accountable Corporate Governance’, above n 96.