Final answer:
Scholar Kevin Bahr identified executive compensation schemes and the financial relationship between audit firms and clients as causes for conflicts in the financial markets.
These issues can lead to short-term prioritization and compromised auditing, exemplified by the failure of Lehman Brothers due to inadequate corporate governance oversight.
Step-by-step explanation:
Kevin Bahr, a scholar in corporate finance, identified several causes for conflicts in the financial markets. Among these, the executive compensation schemes and the financial relationship between public accounting firms and their audit clients have been noted as significant factors.
Executive compensation schemes often emphasize short-term shareholder wealth, which can inadvertently encourage executives to engage in actions that boost short-term gains at the expense of long-term stability. This can create a conflict of interest between executives who may prioritize immediate financial rewards versus the long-term health of the company.
Additionally, the financial relationship between audit firms and clients can lead to a lack of independence and objectivity in the auditing process, potentially compromising the accuracy of financial information.
The Lehman Brothers case exemplifies failures in corporate governance. The Board of Directors did not exercise adequate oversight to prevent management from taking excessive risks, driven by the Executive Compensation Committee's focus on short-term gains rather than considering long-term risks.
Such governance issues highlight how important it is for corporate oversight mechanisms to function effectively to prevent conflicts and crises in the financial markets.