Introduction
Jay W. Lorsch is an internationally recognized expert in boards and corporate governance. Here he argues that the lack of experienced bankers on bank boards was a major contributor to the 2008 financial crisis. He believes that the “independence” criteria played a big part in banks’ preference for nonbankers as nonexecutives, and must now be reconsidered. Lorsch also argues that US companies should keep the roles of chairman and CEO separate as is the case in the United Kingdom.
Lorsch is Louis Kirstein Professor of Human Relations at Harvard Business School and Chairman of the school’s global corporate governance initiative. He has taught in all of HBS’s educational programs. As a consultant, Lorsch’s clients have included Citicorp, Deloitte & Touche, DLA Piper Rudnick, Goldman Sachs, Tyco International, and Shire Pharmaceuticals.Lorsch graduated from Antioch College in 1955. He has an MSc in business from Columbia University and a doctorate in business administration from HBS. From 1956–1959, he served as a lieutenant in the US Army Finance Corp. He is also a Fellow of the American Academy of Arts & Sciences.
The Crisis and Financial Institutions
In the many commentaries about the credit crisis, blame has been placed squarely on the management of the failed financial institutions. While these leaders certainly bear some responsibility, the boards of directors to whom they report should not be let off the hook so easily. After all, boards are ultimately responsible for the performance of their companies.
In this essay I explore the lessons we should draw from these failures about the role of boards in overseeing complex financial institutions. I do so with two caveats. First, boards are not the only governance body that has failed. Government regulators, credit rating agencies, and accounting firms, among others, must also bear some of the responsibility. Second, knowing how boards of directors failed must largely be a matter of informed speculation on my part, since in the current legal environment the board members directly involved are not willing to talk about what went wrong. I say “informed speculation” because I have had the opportunity to consult for boards of such firms in more halcyon times.
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