Behavioral Finance in Corporate Governance - Essay Example

Milgram's experiment test innate loyalty through psychology experiment. psychological attributes of the respondents were tested in mock experiments subjects were made to electrocute strangers contrary to their own beliefs Leadership and corporate governance Modern liberal corporate governance calls for different professionals in leadership restrained by laws and rules.

The leaders are given different authorities to run organizations. The CEOs are appointed by the Board of the organization The boards remain loyal even to misguided CEOs. Many boards detest disagreeing with the CEO because they feel that would be perceived as disloyalty. Dissenting peers and conflicting authorities The Milgram experiment explains how people dissent from peers and conflict with authority. Cases of dissenting peers voicing their concerns; the subjects reduce their loyalty levels to the authority.

Encouraging disobedience on boards Peer concerns may disrupt loyalty and encourage others board members to also disagree. CEO from certain meetings since that would encourage disobedience that offers an objective assessment of the company Alternative explanations People would naturally be obedient until other people including peers voice concern When the concern is raised people begin to question their loyalty. Ethics of corporate governance Organizations are marred with ethical failures where fail to offer the right counsel when they are required to People make excuses for ethical failures Loyalty and morality often clash among people in authority in corporate bodies.