This chapter will:

• consider the long-term causes of the financial crisis of 2007/8/9 as an introduction to the systemic issues of corporate governance;

• track the precursors to the 2007–8 collapse;

• review some of the governance issues involved in the collapse;

• consider the significance of risk issues in precipitating the collapse.

Introduction

So far the issues of corporate governance that have been dealt with in previous chapters have been essentially those related to the company and its immediate constellation of interested parties. Detailed attention has been paid to its stakeholders (which include its shareholders) and the legal context in which the company operates. Mention has also been made of the context of corporate governance in terms of the historical development – the ‘geological’ aspect outlined in the Introduction – all with a view to examining if the descriptions of corporate governance and how it works in the UK environment are accurate.

This chapter will introduce an examination of another dimension of governance, described in the introduction, to join the procedural behavioural and structural dimensions already dealt with. This is the systemic dimension of governance: it refers to the interlinking relationships between separate companies that form an economic or sectoral structure.

Systemic governance therefore describes the way that entire system of governance works and reflects the significance of the inter-relationship and the impact that good or bad governance can have on all parts of the economy. Collectively, effective systemic governance is nearly as important for all companies and for all shareholders as is the proper procedural and behavioural governance of any single company, since if the systemic part refuses to function properly – or is impaired in its performance – then the behavioural aspects which are supposed to reinforce the effects of the procedural systems cannot support the load and the system effectively breaks down.