Friday, October 19, 2018

The IL&FS Crisis: - Teaching to Governance

The IL&FS Crisis: - Teaching to Governance

The Infrastructure Leasing and Financial Services Limited [IL&FS] has elevated a number of questions whirling around corporate governance. Are governance failures to blame for the embarrassing situation in company finds itself? A Question has been said about the role of independent directors, nominee directors, auditors and credit rating agencies. One aspect is missing in the consultation on the specifics of governance issues that affect banks and financial institutions. Traditional corporate governance models are not enough to deal with governments in such companies

As I argue in BloombergQuint, Bank and financial institutions governance are different from other companies because the main concerns are related to immoderate risk-taking. A shareholder-oriented approach in corporate governance would enable to take greater risks in financial institutions. This is the larger impact of the failure of such institutions and peril enclose the expectation of a government bailout. All these points towards the need for more muscular risk management mechanisms in a financial institution, an aspect that appears to have been sorely missed in IL&FS.

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