"Tor Vergata" University of Rome
Graduate Student, Department of Business Studies
Thesis Title: Essays on Structural Paradigms And Role Of Subjects in Corporate Governance: An Explanation Of 2007-2010 Financial Crisis
About
The financial crisis of 2007-2010 has upset bank organizations and prominent names, who, until then had been considered the best ones in their field, even by the protagonists of the sector. So many bankruptcies as in the last few years, had not been seen since the Great Depression; it seems therefore due, rather than necessary, to investigate the entrepreneurial and decision-making structures of the banks affected by the crisis, as fundamental aspects for such organizations. During exceptional and unstable situations, the change required to an organization is of great importance, even regardless of ten-year balances, which until then had been well-established. At the same time, it is important to analyse the entrepreneurial culture of those banks that are succeeding in improving their own performances, or at least in withstanding the recent market shocks. Studying the structures of said banks means to make an impartial analysis of their corporate governance. The ethical direction and health of organizations is a direct result of ethical actions by managers (Hyman et al., 1990). The success or the failure of such banks has been brought about, with their merits and faults, by persons, i.e. by entrepreneurial leaders and top management. But here, as in any other economical and political field, the ethicality of decisions made by managers has been of some importance: their behaviour depends unavoidably on their own values and culture. Actually, there are some authors stating that there is a direct connection between ethics and managerial behaviour (Fritzsche and Becker, 1984; Premeaux, 2004; Premeaux and Mondy, 1993). It is then possible to detect a strict connection between the strategy adopted by a bank and the responsibility of the person who made the decision of undertaking that particular strategy.
An Aristotelian approach suggests that the corporation should be considered as existing to allow the decision maker, who normally is a manager, to live a complete and good life and to make decisions that involve the interests of different stakeholders. This approach leads to a number of implications regarding the role of organizational politics and the managerial function (Wijnberg, 2004).
Well, in what way have personal values entered inside the corporate culture causing success or failure? Corporate governance is the expression that best summarizes the culture and the action of either enterprises and banks. For more than 20 years it has been one of the most common terms used in business and finance discourses (Keasey et al., 2005). Corporate governance is associated with the defense of shareholders’ interests by the use of firm governance devices (Johnson and Greening, 1999; Shleifer and Vishny, 1997; Short et al.,1999). It can be broadly defined as the exercise of power over corporate entities (Tricker, 1994). The notion of corporate governance as dealing with the interaction between a firm’s ownership, board and top management has not been sufficiently explored in the literature (Monks and Minow, 2004; Tricker, 1996).
DISSERTATION
The research proposal is to examine different types of governance, based on different values, by taking account of how distinct personal values could have led to different performances, although originated from the same market field.
Moreover, the purpose of the research is to investigate how the management of strategic change has been decisive in getting over or falling in the present financial crisis and, above all, how strategic change has been managed within the banks hit by the crisis. That is to say, to investigate whether the bank organizations that have been most deeply affected by negative contingencies have been able to reverse their trend in a particular time instant, even by making a managerial change of people and ideals, or if their distorted idea of market and making profit led them to collapse. It is exactly in this case that studying the strategic change performed by the banks hit by the financial crisis is of fundamental importance. The ability of an organization to change its strategy in line with evolving and changing internal capabilities and environmental conditions is a key outcome variable of governance research (Goodstein and Boeker, 1991; Pettigrew, 1992). Strategic change is defined as a difference in the form, quality, or state over time in organization’s alignment with its external environment (Rajagopalan & Spreitzer, 1997; Van de Ven & Poole, 1995). In the present research project, according to Hofer & Schendel (1978), strategic change is defined as “changes in the content of a firm’s strategy as defined by its scope, resource deployments, competitive advantages, and synergy”. Considering the definition of strategic change, strategic change could be affected by the states of firms and their external environments. Because the performance of firms might dependent on the fit between firms and their external environments, the appearances of novel opportunities and threats in the external environments, in other words, the change of external environments, require firms to adapt to the external environments again; as a result, firms would change their strategy in response to the environmental changes. At the same time it is important to investigate whether bank organizations have been able to react to the crisis, by modifying their structure and by managing a change strategy that is not always easy to be brought about. Such strategy can be corroborated also by the relationship among property, management board, top management team (TMTs) and CEOs, as well as by the number of executives, that is to say, the deep concept of Corporate Governance.
Finally, the research aims at considering that exactly the credit institutions which have started a change project are those making the best performances, or at least those that have been able to defend their market integrity. Evidently the proposal of the research is not so much to analyse the financial process adopted by these banks during the crisis, as the entrepreneurial and management process that made them adopt certain choices and lead sometimes to failure and some others to success.
