Introduction

Since the onset of the credit crisis, there have been a number of high profile failures in the financial services industry, which have exposed glaring shortcomings in the corporate governance framework at major banks. Previously, the governance framework at banks gave undue precedence to revenues and reward at the unfortunate expense of effective risk management procedures. Moreover, there was insufficient oversight of senior management by the Board and organisational structures were too complex, which further exacerbated an already substandard framework. Now, however, significant changes are being pursued by major banks to redefine this framework and accord greater authority to Risk Managers.

Key Findings

• Committee Structure – To best respond to clients’ expectations, leverage the strengths and enhance the synergies of a multinational company, an effective governance structure must be in place across all geographies and divisions.

• Responsibility and Accountability – As is to be expected, the board approves the delegation of authority at the interviewed banks. This is in line with effective corporate governance practices as the board ultimately delegates authority primarily, and through approving further delegation of authorities, the board can ensure that decisions made are in keeping with the business strategy, culture and risk appetite.

• Transparency of Risk Information – Responses from participating banks indicate that it is commonplace in the industry for financial institutions to provide as much information as possible concerning governance and committee structures to all employees. However, industry players are setting limits as to what can be made freely available. Understandably, risk information deemed too sensitive is not distributed or made available to those it is not considered pertinent.

• Policy – Although it is a generally accepted fact that it is extremely difficult to guarantee governance policies are instilled into every colleague at an institution, banks are persisting in endeavours to make it as difficult as possible for them to be ignored.

Conclusion

Released in early 2010, the Basel consultation papers heralded significantly more prescriptive oversight of the corporate governance framework by supervisory bodies. Endeavours to strengthen this framework, however, should not be undertaken solely to avoid regulatory recrimination. Otherwise, these initiatives would simply culminate in mere box-ticking exercises no different from those that fomented the credit crisis.  It is, therefore, necessary for these changes to be driven internally, with efforts being to certify buy-in form all business lines and personnel.

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