Comment by: Kumar Pallav Corporate law: Policy Analysis

Author: Nicholas Calcina Howson Michigan Law School, U.S.A

Market collapse reaction in U.S. and U.K. financial sector leads to significant change in the structure of corporate governance. The present paper makes a first step towards providing as how the widely accepted notion that robust regulatory response to the global crisis of 2008, for the financial sector specifically, can go too far or at least in terms warned against by Roger Altman. This paper investigates remedy and the financial sector reforms that followed the Great Depression.

In this comment I intend to focus on the paper written by Nicholas Calcina Howson and how the author could argue and analyze that investors, analysts, legislators, and pundits have spotlighted good or improved corporate governance as a remedy for all that presently ails us. The goal of this comment will be to support and contrast the views of Nicholas Calcina Howson, specifically in the issue of the role of corporate governance in the present global crises. In this paper, the author analyzed the new governance challenges and tried to track the answer to the remedy for primary policy question especially with respect to the financial firms.

The author has provided the remedies to improve the firms internal affairs that includes remedy in a long wish list that includes tougher requirements for risk capital, liquidity, and leverage; compensation and bonus reform; re-imposition of the Glass-Steagall-like separation of bank "utility" and "casino" functions; the downsizing or breakup of institutions deemed "too big to fail;" enhanced consumer protection; securities law liability for secondary violators (like credit

Comment by: Kumar Pallav Corporate law: Policy Analysis

rating agencies); direct taxation of proprietary trading; "macro-prudential" regulation; and new transparency requirements for derivatives trading and clearance. Author suggest that even if inspired to monitor operations, few institutional investors (and perhaps few senior executives at the financial firms themselves) possess the technical expertise and breadth of knowledge to understand the financial products and trading strategies they are charged with overseeing, not to mention the global risk profile of the firm.

At the other end of the spectrum, the analysis explore that the language of the Senate bill provides a strong hint of the problem, specifically where the statute invokes improved corporate governance so that managers will "prioritize the long-term health of their firms and their shareholders. " Author supports that there is no doubt that the traditional menu of corporate governance mechanisms, designed to make management more responsive to the interests of shareholders, will cause those managers to prioritize the interests of their shareholders." Additionally author produced the evidence that to support his argument by giving example of Deutsche Bank and SocGen. Author indicated that with the onset of the global financial crisis, both Deutsche Bank and SocGen were laid low along with the global financial sector, while BNP Paribas survived in far better shape and as a mainstay of the new, more responsible, global financial order. This supports the strong rescue system of corporate governance.

On the other hand, author analyzed the impact of global financial crisis on China, U.S.A. and U.K. As per author, brutal recession is unfolding in the United States and Europe, which is likely to be more harmful than the slump of 1981-82. Author believes that the current financial crisis has deeply frightened consumers and businesses, and in response they have sharply retrenched. In addition, the usual recovery tools used by governments like monetary and fiscal stimuli will be relatively ineffective under the circumstances. This damage has put the American model of free-market capitalism under a cloud. The financial system is seen as having collapsed; and the regulatory framework, as having spectacularly failed to curb widespread abuses and corruption. As a result for now, searching for stability, the U.S. government and some European governments have nationalized their financial sectors to a degree that contradicts the tenets of modern capitalism. However, author believes that no country will benefit economically from the financial crisis over the coming year, but a few states, most notably China, will achieve a

Comment by: Kumar Pallav Corporate law: Policy Analysis

stronger relative global position. China is experiencing its own real estate slowdown, its export markets are weak, and its overall growth rate is set to slow. But the country is still relatively insulated from the global crisis. Its foreign exchange reserves are approaching $2 trillion, making it the world's strongest country in terms of liquidity. Author believes that this relatively unscathed position gives China the opportunity to solidify its strategic advantages as the United States and Europe struggle to recover.

However the present paper did not address the equally important other prime issues as global poverty alleviation, economic justice, sustainable development and greater protection of consumers. But I admire finding in this paper which bring to light that how the global financial crisis of 2008-2009 should teach us once again, at least with respect to financial institutions, that we are well advised to enhance prudential regulation by public authorities, over and above the intuitively appealing but wrongheaded desire for better or more vigorously enforced corporate governance.