We have just passed the second anniversary of the bankruptcy of Lehman Brothers in 2008. Of course, the financial crisis it caused, in which we are still immersed, has given rise to a flurry of activity by regulators around the world. We are all agreed upon one message: NEVER AGAIN. But what action needs to be taken to ensure that the collapse which followed the bankruptcy does indeed never happen again?The European Commission has been busy on this question. It has an important role in company law. In its own words: ‘Harmonisation of the rules relating to company law and corporate governance, as well as to accounting and auditing, is essential for creating a Single Market for Financial Services and products.’ Specifically on the financial crisis caused by Lehman Brothers, it issued a consultation paper earlier this year on Corporate governance in financial institutions and remuneration policies. It instructs readers that the Green Paper should be read in conjunction with a Commission Staff Working Paper, which takes stock of the current position.

The Green Paper asks a number of questions relating to the composition and functioning of boards of directors (‘Should the number of boards on which a director may sit be limited (for example, no more than three at once)? Should combining the functions of chairman of the board of directors and chief executive officer be prohibited in financial institutions?’), together with questions on external auditors, supervisory authorities, shareholders, remuneration and other matters.

The Council of Bars and Law Societies of Europe has responded to the consultation. This is not the place to go over the substance of our response, which can be read on our website. Rather, I want to concentrate on one small but important point. Our response occasionally expressly states that the commission is asking the wrong questions. For instance, on separating or combining the function of chairman and chief executive officer, mentioned above, we say: ‘The CCBE believes that the spread of the current trend of this separation, even if found, in practice, in several countries including the US, should not become mandatory because there is no evidence that financial institutions which opted for this separation have necessarily tackled or better averted the financial crisis of 2007/2009 than institutions which still have the combination of the two terms.’

On independent directors: ‘Having independent directors does not automatically mean that they are competent, and the financial crisis which started in 2007 proved to the US that independent directors are not a guarantee of good management since the average amount of independent directors present in the Board of directors of AIG, Lehman Brothers, Merrill Lynch and Bear Stearns rose to 84% in 2007.’

On diversity of board composition: ‘In spite of the global dimension of the crisis, European, American or Asian directors, as diverse in wealth and training as they were, did not behave differently. Finally, within the same regions, boards of institutions showing both cultural and linguistic as well as national diversity with French, Flemish and Walloon Belgian, Dutch and Luxembourg nationals, did not handle the crisis any better than more "uniform" boards among their competitors.’

This led us in our covering letter to the responsible commissioner, when submitting our response, to say: ‘We do believe that the questions asked in the Green Paper do not address the main causes and political and legal issues that have caused the financial crisis. The CCBE believes that the main causes/issues of the financial crisis still to be addressed politically and legally are the following: the lack of equity capital of the banks; multiple securitization; long-term financing with short-term refinancing; the establishment of Special Purpose Vehicles outside the balance sheets of the banks dealing with a large variety of MBS, ABS and derivative products; the lack of certification of these products and a lack of regulation of such product activities. The CCBE firmly believes that there remains an urgent need to cope with these problems, as they are still unresolved and may cause another financial global crisis in the foreseeable future.’

If regulators are not asking the right questions, what hope is there for right remedies, and in particular a satisfactory outcome to the common cry of: NEVER AGAIN.

Jonathan Goldsmith is the secretary general of the Council of Bars and Law Societies of Europe (CCBE), which represents over 700,000 European lawyers through its member bars and law societies

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