An offshoot of the global financial crisis has been the significant changes in economic policies in the developed world. The recent phenomenon relates to increasing calls from leading economists to nationalise troubled banks, particularly in the U.S. The concept of nationalisation was previously associated with the so-called ‘socialist’ economies, but is now becoming closer to reality even with...
Lessons for Financial Sector Regulation
Lloyd Blankfein, the chief executive of Goldman Sachs, offers his explanation of the things that went wrong in the financial services sector which resulted in contagion and the global financial crisis. In his column in the Financial Times, Blankfein outlines the failings and the lessons from the crisis: – risk management should not be predicated on historic data;– outsourcing of risk...
Sentences in China’s Sanlu Milk Case
Speaking of corporate crimes, this news report in Caijing states that death sentences have been awarded by an Intermediate Court to three persons and life imprisonment for one in the contaminated milk case. This comes within mere 4 months of the scandal that unfolded in September last year. While criminal punishment will certainly serve as a deterrent, questions have been raised at the...
The grounds for lifting the Corporate Veil
In an earlier post, I looked at a recent judgment of the England and Wales High Court by Justice Munby in Hashem v. Shayif. It appears from the judgment that the only case in which the corporate veil could be lifted was where the company was a façade. In order to support this conclusion, Justice Munby relied on several cases, but most prominently on the decision of the Court of Appeals in Adams v...
British decision on lifting the corporate veil: Clarity or more confusion?
Considerable difficulty arises in trying to find a coherent set of principles to govern issues related to ‘lifting the corporate veil’. Courts have relied upon several factors in deciding whether to ignore the existence of the corporate entity – ‘fraud’ or ‘sham’, ‘single economic entity’, ‘agency’, ‘tax evasion’, ‘determination of nationality’ etc. In the early 1990s, in a landmark...
Nationalisation of Large Corporations
An interesting column in the Economic Times by Swaminathan S. Anklesaria Aiyar looks at the biggest government takeovers in history: “Socialists, like Hugo Chavez in Venezuela or Indira Gandhi in India, are famous for nationalising the biggest corporations. But the US government has taken over three of its biggest corporations within two weeks. Has the US turned socialist? American right-wingers...
History Repeats Itself: Whither Governance? (Part 3)
In two previous posts (here and here), we discussed the several corporate governance issues that have been accentuated on account of the current financial turmoil emanating from the U.S. In this post, we examine some of the differences between corporate structures and governance in the U.S. and India. In India, companies predominantly display concentrated shareholding structures (as opposed to...
History Repeats Itself: Whither Governance? (Part 2)
In the background of the boardroom failures discussed in the previous post, it is useful to explore some of the factors involving U.S. corporate governance that may have led to this situation. 1. Dispersed Shareholding and Lack of Oversight One of the key problems involving a dispersed shareholding model (that is prevalent largely in the U.S. and U.K.) is that the individual shareholders have...
History Repeats Itself: Whither Governance?
Much has already been stated in the press about the current financial crisis that has rocked not only the U.S. economy, but also the global financial system, and indeed the magnitude of this crisis will ensure that a lot more will be said in the future. Here we focus on one aspect of the crisis, which is the perceptible failure of corporate governance involving large companies. In a provocatively...
The Feasibility of a Toxic Relief Fund
The new proposal to deal with the financial crisis involves the U.S. Government setting up a special fund to acquire toxic or illiquid financial assets on bank balance sheets. The Times Online has a report: “Henry Paulson, the US Treasury Secretary, hopes to nationalise the global risks associated with America’s sub-prime mortgages by setting up a toxic relief fund to buy up the mortgage assets...
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