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ABSTRACT. The financial crisis of 2008-9 revealed that our broad model of corporate governance is broken, independent of the shortcomings in the regulatory system. Managers and boards of directors in scores of systemically important firms failed to protect employees, customers, or shareholders, and placed the global financial system at risk. I assert that the root cause of the crisis can be found in five related systems: incentives; risk management and control; accounting; human capital; and culture. The worst firms had lethal combinations of strong incentives, weak control and risk management, flawed internal and external accounting, low skill and/or low integrity people, and corrosive cultures. pp. 11–53
JEL: G32, G34, M41, J24

Keywords: financial crisis, management, corporate governance, system

WILLIAM A. SAHLMAN
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Harvard University

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