The important role of the financial sector Before discussing the incentives that contributed to the buildup of risk at financial institutions, I would like to highlight the important contributions that the financial sector makes to the economy and society. First and foremost, financial institutions channel society’s scarce savings to productive investments, thereby promoting business formation and job creation.
I do not deny that laws could be passed to force selection of slates of directors who are patently independent of CEO influence and thereby significantly diminish the role of the CEO. I suspect, however, that such an initiative, while ensuring independent directors, would create competing power centers within a corporation, and thus dilute coherent control and impair effective governance.