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Prodrome of a governance crisis - behaviour

Regulators and board directors should be sensitive to advance signals, usually manifested through behavioural aberrations before the failure

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R Gopalakrishnan
Volkswagen’s Dieselgate scam about fraudulent emission testing was revealed in 2015. Earlier in 2009, the Financial Times had reported about the company “having the worst corporate governance structure among Germany’s blue-chip companies.” There had been much water cooler talk as well, yet all advance signals were missed — the prodromes were missed!

In 2019, the European Securities and Market Authority criticised German regulators for ignoring the red flags over Wirecard’s financial reporting for years. News reports carried the headline, “German regulator should have heeded Financial Times on the Wirecard fraud.” Implicitly, the role of the independent directors was also doubted.
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First Published: Nov 20 2020 | 1:11 AM IST

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