Strategic Failure in the Financial Sector: A Policy View

Analysis of the recent financial crisis has tended to focus upon "market" and corresponding "regulatory" failures. While this provides important insights, it may neglect deeper issues at the root of recent problems. In this paper, we take a broader perspective, drawing upon the stategic choice approach to the theory of the firm (Cowling and Sugden, 1998, 1999). We present a governance-based analysis which emphasises the process of engaging interested "publics" in corporate decision-making processes. We illustrate our arguments with respect to three UK cases-Northern Rock, Bradford and Bingley, and HBOS banks-which each required major interventions by the UK Government and whose recent history reveals significant changes in ownership, governance and corporate strategy. We argue that the current period of reform for these former building societies represents an ideal opportunity to address serious concerns over governance within the financial sector, and we propose a revised mutual solution as one appropriate way forward.