Lessons from the Financial Crisis

by Christie Stephenson, Vancouver correspondent

On May 19th 2010, the SFU CIBC Centre for Corporate Governance and Risk Management (CCGRM) and the Shareholder Association for Research & Education (SHARE) hosted a session entitled “Lessons from the Financial Crisis: Governance Gaps and Strategies for the Future” in Vancouver.

The event featured presentations by two highly respected corporate governance experts. Damon Silvers is the Deputy Chair of the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP) and the Director of Policy and Special Counsel for the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO). Edward Waitzer is the Jarislowsky-Dimma-Mooney Chair in Corporate Governance at the Schulich School of Business and Osgoode Hall Law School, and Senior Partner at the law firm Stikeman Elliott. The event was moderated by Robert Adamson, who is the Executive Director of the SFU CIBC Centre for Corporate Governance and Risk Management.

Mr. Silvers argued for major changes in U.S. financial regulation. He called specifically for a new and independent regulator focused on consumer protection, executive compensation regulation designed to discourage excessive risk-taking, curtailing financial institutions’ leverage, credit rating system reform, and increased oversight of the shadow banking system (including tax havens, private equity, derivatives, and hedge funds).

Mr. Waitzer focused on evolving fiduciary obligations of pension plan trustees within the context of the financial crisis. Examining the impact of modern portfolio theory on fiduciary norms and behaviour, he examined what went wrong as fiduciary standards evolved, and acknowledged challenges to reform. Finally, he called for a broader view of risk management and the refining of fiduciary norms to align incentives to the interests of plan beneficiaries.

The audience at SFU’s Segal Graduate School of Business included pension funds managers and trustees, institutional investors, as well as academics. Steve Carley, the financial services analyst on Northwest & Ethical Investments’ sustainable investing team, attended the event. He noted “sessions like these are very helpful in keeping up to date on the issues related to financial services regulation not only in Canada but globally, which is critical to our work as socially responsible investors”.

Peter Chapman, SHARE’s Executive Director concluded that “the message I brought home from Ed Waitzer’s talk is that a careful rethinking of the fiduciary standard, including monitoring the funds agents and focusing on the best interests of all beneficiaries in an even-handed way, is essential if pension funds are to avoid the pitfalls of conflicts of interest, complacency about risk and complex governance challenges. Damon Silvers reminded us that the ability of investors to earn reasonable long run rates of return depends on capital markets that efficiently convert savings into productive investment, something achievable only with farsighted and effective regulatory reform. Responsible investors will recognize in both speakers’ points the central role environmental, social and governance factors play in managing risk and creating sustainable capital markets”.

The panel followed an earlier session presented by the SFU CIBC Centre for Corporate Governance and Risk Management (CCGRM) and SHARE, entitled “Global Financial Meltdown: What Lies Ahead for Corporations, Investors and Global Markets”. Mr. Adamson noted that Centre, which facilitates research and sponsors event, operates with the belief that “good governance requires an enterprise-wide view of risk management”.