Why Corporate Governance Matters — and How to Get It Right

By Rehm, Barbara A. | American Banker, May 10, 2012 | Go to article overview

Why Corporate Governance Matters — and How to Get It Right


Rehm, Barbara A., American Banker


Byline: Barbara A. Rehm

Say the words "corporate governance" and most people yawn. So it's probably no shock that a recent Group of 30 report on the topic came and went without much mention.

That's unfortunate because getting governance right is essential to the safe, sound and successful operation of a financial institution. It's the framework the people in charge of a company use to ensure accountability and transparency; it's how they balance the varying demands of shareholders, customers, employees and regulators.

Without solid corporate governance, a bank is rudderless in a sea of competing interests, so efforts to improve it are central to reforming our financial system.

The Group of 30 is a force-field of economic and financial policymakers, past and present, domestic and international. It's all the men who have been influencing financial services policy for decades: Paul Volcker, Gerry Corrigan and Bill Dudley; Adair Turner, Jean-Claude Trichet and Mario Draghi; Larry Summers, Ken Rogoff and Martin Feldstein. The list goes on and it doesn't get any less impressive.

This group of heavyweights decided to take a close look at corporate governance and issued 80 pages of analysis and recommendations last month.

"Toward Effective Governance of Financial Institutions" pulls no punches. Consider this from the foreword: "In the wake of the crisis, financial institution governance was too often revealed as a set of arrangements that approved risky strategies (which often produced unprecedented short-term profits and remuneration), was blind to the looming dangers on the balance sheet and in the global economy, and therefore failed to safeguard the financial institution, its customers and shareholders, and society at large. Management teams, boards of directors, regulators and supervisors, and shareholders all failed, in their respective roles, to prudently govern and oversee."

The project was launched about a year ago under the meticulous eye of Roger Ferguson, the former Federal Reserve Board vice chairman who now leads TIAA-CREF. Ferguson worked closely with John Heimann, a former comptroller of the currency now with the Financial Stability Institute; Bill Rhodes, the legendary Citigroup executive; and David Walker, a former British regulator who is now a senior advisor at Morgan Stanley International.

The Group of 30 sent pros from Ernst & Young and Tapestry Networks to personally interview executives and directors at 36 of the world's largest financial services firms about their company's governance.

The report is chock full of ideas for executives, regulators and even shareholders, but it's prime target is directors. The board is the linchpin because it controls three factors critical to a company's success: business strategy, risk appetite and the selection of key officers, including the chief executive.

"Boards that permit their time and attention to be diverted disproportionately into compliance and advisory activities at the expense of strategy, risk, and talent issues are making a critical mistake," the report states.

Boards "must take a long-term view that encourages long-term value creation in the shareholders' interests, elevates prudence without diminishing the importance of innovation, reduces short-term self-interest as a motivator, brings into the foreground the firm's dependence on its pool of talent, and demands the firm play a palpably positive role in society."

That's quite a daunting list, and I doubt there is a bank board in this country that isn't drowning in compliance issues such as implementing the Dodd-Frank Act and addressing the myriad "matters requiring attention" flagged by examiners.

So I'd like to devote this column to a list of questions this report ought to spark in the minds of bank executives and directors.

For instance, is your board focused on the important issues, the ones that matter to the company's long-term vitality? …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Why Corporate Governance Matters — and How to Get It Right
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.