Following MF Global's sudden meltdown, the company's board of directors is under harsh scrutiny.
In particular, corporate governance and executive compensation experts are raising questions about how effectively the board evaluated and oversaw the risky strategy pushed by its CEO Jon Corzine.
While it is not being accused of any illegalities, critics say the brokerage and clearing firm's board tolerated at least one possible conflict of interest, bent its own rules and failed to rein in Corzine as he drove the company into dangerous bets.
The former Goldman Sachs head piled on leverage, amassed an astonishing $6.3 billion (3.9 billion pounds) exposure to debt from European governments caught up in the euro zone crisis, and ultimately allowed MF Global to lose the market's confidence.
The board also approved a pay package for Corzine that the experts say may have encouraged the former New Jersey governor to take big risks.
Experience certainly wasn't the problem. All of the eight board members had years of financial sector experience, including a former bank CEO and a former insurance company CFO. The most seasoned member spent more than 40 years at Merrill Lynch, including as executive vice president of operations and as a member of the executive management committee.
Directors did not respond to requests for comment. But a source familiar with the board's discussions said directors did not allow Corzine to do everything he wanted and that there was a significant amount of debate and discussion with (Corzine) about many things, including the European portfolio.
He did not provide further details about the discussions but stressed that the board disclosed everything required under listing rules and securities law.
MF Global declined to comment and Corzine could not be reached.
The board, though, did indicate that it was very happy with Corzine, and some critics say it may have been too star struck by his presence. When Corzine joined MF Global in March 2010 there had been some surprise that he would take a job running a relatively little-known firm.
As recently as July, MF Global's Compensation Committee lauded his leadership as exemplary and praised the strategy he set for the firm, including significant improvements in the reputation of the firm and its improved posture with regulators, according to its proxy statement ahead of its annual meeting.
I think they were intimidated by him, said Jack Connell, managing director of Connell & Partners, a Woburn, Massachusetts, executive compensation consultant who has advised other boards who hire powerful CEOs. They just gave in to his demands as they really, really wanted him to run MF.
GovernanceMetrics Inc gave MF Global a D grade for corporate governance and ranked the firm's risk management profile among the bottom 20 percent of U.S. companies before the past week's crippling blows.
We had concerns over conflicted directors and directors who were not expert in the field, and (about) executive compensation that had perverse incentives, GMI corporate governance expert Nell Minow said.
The issues existed well before Corzine became MF Global's CEO in March 2010. But GMI said the company's risk management profile worsened after Corzine arrived.
One board member's connections raise questions of conflict of interest from the start, experts said.
J.C. Flowers & Co, a private equity firm and a major MF Global shareholder, recruited Corzine for the CEO job at MF Global. And until Thursday, Corzine was a non-salaried operating partner at J.C. Flowers, which is led by former Goldman banker Christopher Flowers.
David Schamis, a partner at Flowers, sits on the MF Global Board and was deemed an independent director by the firm, citing New York Stock Exchange rules, despite his close ties to the shareholder.
That allowed him to serve on the firm's compensation committee, setting Corzine's pay package, which is seen by governance experts as a far from ideal arrangement.
Corzine was allowed under his MF Global contract to keep a business opportunity or deal he came across in his capacity as a partner at J.C. Flowers away from MF Global.
Many governance experts will call for having an investor on the board, but when you have separate third party relationships like this one, that's a different story, says Robert Jackson, governance expert at Columbia Law School and a former advisor to the U.S. Treasury.
A source close to JC Flowers said that as an operating partner Corzine worked part time for the private equity firm. His only compensation from the firm was a small share in profits from Flowers' latest fund, the source said.
Schamis also sits on MF Global's audit and risk committee, which is supposed to provide defence against dodgy accounting and reckless risk taking.
The firm says in the proxy that the committee, among other things, is supposed to review its risk management framework and discuss the risk profile of the Company against the risk appetite and risk tolerances adopted by the board.
The 2002 Sarbanes Oxley Act, which was introduced after the Enron and WorldCom corporate scandals, mandated that only independent directors with no material relationship to the company are allowed to be members of such committees, largely to avoid conflicts of interest that could lead to fraud or large losses.
More than 70 percent of audit committee members surveyed by KPMG in 2004 believed the losses incurred in high profile scandals could have been avoided if audit committees had been made up of independent directors.
In what may be the first of many such investor lawsuits, MF Global's Corzine and three other company executives were sued on Thursday in Manhattan federal court by a shareholder over the collapse. Shareholder Joseph DeAngelis accused executives of having continuously touted MF Global's financial controls and liquidity, despite knowing their statements were false and misleading at the time they were made.