Clearinghouse Governance: Moving Beyond Cosmetic Reform

28 Pages Posted: 11 Apr 2013

Date Written: 2012

Abstract

The procedures that boards adopt in their decision- making processes raise uniquely interesting questions. In one of the most thoughtful modern critiques of the functional role of corporate boards, theorists Colin Carter and Jay Lorsche argue that three critical issues influence the effectiveness of boards’ decision-making processes — time, knowledge, and information. While each of the three elements merits careful consideration, conventional wisdom suggests that it is difficult, if not impossible, for boards to make rational business decisions if they do not allocate sufficient time to decision-making processes. Recent popular accounts contradict the prevailing presumption that dedicating more time to the decision-making process improves the quality of the ultimate decision. In his New York Times best-selling account of the power of thinking, Malcolm Gladwell explains the countervailing view, arguing that decisions made in the blink of an eye may be as valuable as decisions characterized by months of rational analysis. Notwithstanding the accolades bestowed on Gladwell’s contribution to the literature, not everyone finds his account persuasive. Dissecting Gladwell’s arguments that extol the virtues of “snap” decision making, Frank Partnoy’s recent article — “Don’t Blink: Snap Decisions and Securities Regulation” — offers an insightful analysis of the significance of timing and careful reflection in decision-making processes. Evaluating the convergence of increasingly complicated securities-trading technologies and complex financial products, Partnoy contends that boards may benefit from introducing a measured pace in their decision-making processes. Examining precipitating decisions at financial institutions in the period preceding the recent financial crisis and the events of the flash crash that threatened financial markets in May 2010, Partnoy concludes that boards should introduce procedural reforms that deter “snap” decision making and introduce safeguards that institute a delay or “pause” in financial institutions’ decision-making processes and financial intermediaries’ operational processes. In addition to agreeing with Partnoy’s suggestion that decision makers may benefit from deliberation and delay in their decision-making processes, this article argues that further procedural safeguards are necessary to protect the stability of financial institutions and financial intermediaries. Evaluation of the board’s timeframe for making decisions forms part of a broader set of concerns regarding director accountability and institutional safeguards for risk-management oversight in the wake of the recent global financial crisis.

Keywords: securities regulations, clearing houses, clearinghouse governance, Kirstin Johnson

Suggested Citation

Johnson, Kristin N., Clearinghouse Governance: Moving Beyond Cosmetic Reform (2012). Brooklyn Law Review , Vol. 77, p. 681, 2012, Available at SSRN: https://ssrn.com/abstract=2247600

Kristin N. Johnson (Contact Author)

Emory University School of Law ( email )

1301 Clifton Road
Atlanta, GA 30322
United States

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