Question

2. Executives and directors often suffer reputational damage from their association with a failed company. What is the standard by which their “culpability” should be judged? When are these individuals fit to hold future directorships, and when are they “too tainted” by their experience?

Answer 1

When Companies fail in governance many consequences occur:

1)Stock prices falls

2)Stocks under perform for long term

3)Companies faces legal prosecution from shareholders due to the losses caused.

The effect of this on the careers of executives and directors are often cant be judged immediately.There are various examples which shows that the directors and executives got goof offers from good performing companies.Like the directors of Lehman brothers were offered directorship after bankruptcy of the company.The Citigroup director was appointed in Board of Directors of Xerox.There can be various factors for judging the roles of directors in culpability.The circumstances play an important role in judging them.So a degree of their involvement in misdoing should be judged.The companies who appoint them must judge their capacity to learn from their mistakes.Companies also look for people who have experienced crisis situation.

on contrary the directors and executives of failed companies might not fit future directorships of other companies because they are hired to take risk and to monitor which managerial jobs are to fail and learn .But monitoring cant be failed.The governance failure points towards failing of management towards their roles and duties.In future if they are retained they will be under high scrutiny.