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January 6, 2010

Article Examines Whether a Failure of Corporate Governance Caused the 2008 Stock Market Meltdown

Examining whether a failure of corporate governance led to the stock market meltdown of 2008, the lead article in the November 2009 issue of The Business Lawyer considers the situation of 37 companies removed from the Standard & Poor’s 500 index during that year.

The article by Brian R. Cheffins notes that 2008 was the worst year for the S&P 500 index since 1937.  Although financial companies were the hardest hit, all sectors of the index experienced major price declines. Cheffins is the S. J. Berwin Professor of Corporate Law, Faculty of Law, University of Cambridge.

Good corporate governance, the article notes, would seem to produce better managed companies and, therefore, fewer companies likely to run into troubling circumstances. In 2008, there were no major frauds and corporate governance appeared to operate as it was intended with the post-Enron Sarbanes-Oxley rules in place. Despite the fact that these 37 companies were removed from the S&P index, it appears that corporate governance performed as expected.

The article provides background on corporate governance in the United States, looks in general terms at the stock market meltdown of 2008 and compares such factors of the 37 companies removed from the S&P index as senior executive turnover, executive pay concerns, shareholder activism and boardroom performance by directors.

Information on how to order a copy or subscribe to The Business Lawyer is available here.

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