Final answer:
The lack of diversity and independent oversight in the composition of the boards of the two entities indicates a lack of corporate governance. Corporate governance involves the mechanisms, systems, and processes through which companies are directed and controlled. In the case of Lehman Brothers, the lack of diversity on the board of directors contributed to the company's failure by allowing excessive risk-taking.
Step-by-step explanation:
The statement 'The boards of the two entities were identical' suggests a lack of corporate governance because it implies that there was a lack of diversity and independent oversight in the board composition. Corporate governance refers to the mechanisms, systems, and processes through which companies are directed and controlled. It includes the roles and responsibilities of the board of directors in overseeing the company's management and operations.
In an ideal corporate governance framework, the board of directors should consist of individuals with diverse experience, skills, and perspectives. This diversity helps to ensure that decisions are made in the best interest of the company and its stakeholders. When the boards of two entities are identical, it suggests that there may be conflicts of interest or groupthink, which can hinder independent decision-making and effective oversight.
For example, in the case of Lehman Brothers, the lack of diversity on the board of directors was one of the factors that contributed to the company's failure. The board had limited financial service experience and paid too little attention to the operations of the company. This lack of effective oversight allowed managers to undertake excessive risks, ultimately leading to the firm's bankruptcy.