Independent celebrity directors in closely held financial institutions

This paper addresses corporate governance issues around the use of celebrity independent directors in closely held financial institutions. In doing so we illustrate how the power of the celebrity nature of the directors encouraged deposits from members of the public who would not have normally utilised a finance company. The authors employ the failure of Lombard Finance, a closely held New Zealand finance company, to illustrate the agency conflict between directors, who were nominally independent, and outside debt holders. This approach is taken as New Zealand finance companies are unique in that they are predominantly closely held bank-like firms who sourced the bulk of their funds from retail fixed term deposits. The research highlights the conflict inherent when utilising independent celebrity directors as spokespeople for closely held finance companies in a small, loosely regulated market. As a result of the failure of companies such as Lombard, the government changed the law to prevent the use of celebrity spokespeople promoting finance companies. This research contributes to the academic discussion surrounding independent celebrity directors and their influence in the collapse of closely held finance companies at a particular time in recent history and the practical steps taken to ensure that such episodes are lessened in the future.