BANKS' BOARDS OF DIRECTORS MISSED THE CRISIS

The collapse of US investment banks in the autumn of 2008 was one of the most remarkable events in modern economic history. While the responsibility of senior executives in that outcome is clear, what was the role and responsibility of boards of directors and their members? For many years, the boards of directors of leading US banks were collections of remarkable individuals, among the best and the brightest: well-known CEOs, former CEOs, or government officials, successful investors and brilliant entrepreneurs. So why did these boards, encompassing so many intelligent people, fail to prevent the current financial crisis? Why did they fail to stand up and oppose the aggressive investment bets and leverage decisions made by senior managers? Why didn't they stop compensation practices that were inducing traders to assume even more risk at the expense of shareholders and other employees? Why couldn't they prevent at least some of those disasters? Why couldn't the board of directors better monitor top executives at large banks? And why have very few board directors stepped down over the past few months in recognition of their failure to deal with these serious issues in their organizations?

These events in the financial services industry in the United States are unique: no other industry has imploded this way in any other country. It is reasonable to ponder why banks' boards of directors did not act quicker and wiser to stop those developments that severely damaged the world economy.