All companies face challenges designing a governance system that works best for their particular situation and structure. Even the owners of privately held companies sometimes struggle with issues of separation and control. The challenges can be particularly acute when a company founder has considerable influence over the organization and its culture, and third-party investors have been brought in to share ownership. We examine the interesting case of AXA Rosenberg, a joint venture investment management firm founded and run by legendary finance professor Barr Rosenberg. Although successful for a time, the firm eventually collapsed due to a failure in risk management. We examine the governance structure, unique personalities, and series of events that led to the breakdown of the firm and the SEC investigation that resulted in Barr Rosenberg’s lifetime ban from the securities industry. We ask: Is it possible for a board to monitor a renowned executive with extremely specialized knowledge? How can the board satisfy itself that risks are appropriately known and monitored? How does an executive’s personality affect a company’s risk management practices?
Copyright held by David F. Larcker and Brian Tayan. Further inquiries about reproduction and use should be directed to the Corporate Governance Research Initiative.
