1. MAINSTREAM APPROACHES TO BANKiNG CORPORATE GOVERNANCE ?
Corporate Governance Structure: Agency Model
Board of Directors
Principal agent theory, assumes that the owners of the enterprise (the principal) and those that manage it (the agents) will have different interests. (Clarke, 2007, P5).
Corporate Governance Structure: Stewardship
Board of Directors
Stewardship theory holds there is no conflict of interest between managers and owners. Managers are incentivised to act, not as opportunistic agents, but as stewards who act in the best interest of owners. (Clarke, 2007, P9).
( Freeman, (1984),
ed Crane, A et al, 2008 P114)
Stakeholder model of Corporate Governance
Stakeholders theory, is based upon the premise that organisations should be responsible to a wider range of stakeholders, than the narrow interests of one group. (Cornforth, 2007)
The Stakeholders within a PLC, such as employees, regulators or politicians who indirectly influence the organisation’s strategy may be managed through Engagement
Key stakeholders within a PLC such as Shareholders, Executive and Non Executive board members, which currently directly influence the organisation’s strategic management, may be classed as Participants.
‘Women justifying means through sentiment/Social Outcomes’ Moral Obligations or Discretionary Concerns ?
Correlation between Strategic HRM policies and Commitment and Engagement ?
Coalescing gender attitudes around flexible working ? Diversity ? Employment Rights ?
( Brammar et al, 2007, P1706, Peterson, 2004, P304)
( Bones, 2011, P141, Konzellmann, 2005, P545)
Women in Finance Research Findings:
Risk Averse (2013) - Palvia et al
Hypothesises whether women led boards’ are more risk averse than men.
Hold higher equity capital and reduce default risk than men.
Although not specifically gender related, evidence suggesting some correlation that smaller banks with female Chairpersons and CEOs were less likely to fail during the financial crisis than those led by men.
Leheman Sisters (2011)- Nelson
Argues the male /female ‘sameness’ vs ‘difference’ debate is a distraction with regard to the financial crisis.
It exaggerates sex differences in behaviour between men and women at work and stereotypes women (all be it benevolently) as being overly cautious; and lets men off the hook socially and morally for reckless and irresponsible actions.
It also ignores the social impact of the financial crisis upon women over men, for example the impact on household budgets, move to part-time working and impact of redundancies
Alternative Corporate Governance Structures: Female Led ?
Steare,R ‘Ethicability: How to decide what’s right and find the courage to do it’ ‘MoralDNA’
Sandel M – ‘What Money Can’t Buy, the Moral Limits of Markets’ , ‘Justice – What is the right thing to do ?’
What is the Right Thing To Do ?
‘Custom will reconcile people to any atrocity, and fashion will drive them to acquire any custom’ George Bernard Shaw.
Treat others as you would like to be treated yourself
Difficult in an age of excess to determine What would be the balanced approach ?
Integrity, Best Decision, Treat customers fairly.
Jim Collin’s argues what defines Good to Great Companies are those with ‘a common corporate culture of personal humility, intense resolve (courage) and discipline (self-control).’
‘The superior person understands what is right, the inferior man understands what will sell. ‘ Confucius
(Steare, 2013, KE)
Alternative Corporate Governance Structure: Conduct Led ?
(? Lewis , Milan 2013 - Adapted from ABC Welby, St Paul’s Institute, June 2013)
4. TOWARDS A NEW MODEL OF BANKING CORPORATE GOVERNANCE ?
Moral Sentiments ..
( Matt Cartoon, Telegraph Newspapers)
Parliamentary Banking Commission
Core Principles and Conclusions:
Making Individuals Responsibility a reality, especially at senior levels
(include in extremis prison sentences for reckless behaviour)
Reforming Banking Governance to reinforce each banks responsibility for its own safety, soundness and maintenance of standards
(include making financial safety > priority than shareholder interest).
Creating better functioning and more diverse banking markets in order to empower consumers and provide greater discipline on banks to raise standards.
Reinforcing the responsibilities of the regulators in the exercising of judgment in deploying their current and proposed new powers
(ie: Bank of England / Twin Peak Reforms)
Specifying the responsibilities of Government and future Government and Parliament (ie Role of government in preventing too big to fail guarentees).
( Report of the Parliamentary Commission on Banking Standards, June 2013 )
FINANACIAL CONDUCT AUTHORITY: BUSINESS PRINCIPLES ‘where morals do not act as a deterrent then the law must step in. It has to make society’s disapproval clear and give courage to speak out and make things change’ Tracy McDermott, FCA St Paul’s Institute debate 11/04/2013, (St Pauls Institute/CCLA, 2013 P4)
Characteristics of a sustainable and productive banking system
1. A banking sector with a public objective to go alongside its private purpose.
6. A Banking sector that is not proprietary trading and therefore not gambling with other people’s money.
2. A banking sector restricted in the amount of credit it can create to finance real estate and financial assets such as equity and debt securities, and with a particular focus on restricting credit to finance short term trading and derivatives.
7. A banking sector that is not receiving tax-payer subsidies, either through state guarantees ot a tax-payer subsidy of its core product – debt.
3. A banking sector that is internalising its losses
8, A Banking sector that has business models that are stable, through different economic cycles, so that loyalty can be shown to staff.
4. A banking sector that is safe enough and transparent enough to be trusted.
9. A banking sector that is open to the free winds of competition driving customer benefit
5. A banking sector that is taking responsibility for its product, and therefore seeking not to sell unmanageable debt to borrowers.
10. A banking sector where the financial incentives of staff are aligned with all of these objectives.
(ST Paul’s Institute/CCLA, 2013, P6)
The City and the Archbishop
June 2013 St Pauls Institute Debate
Justin Welby argued that ‘Good Banks’ needed to motivated by virtue and a belief in human flourishing rather than merely bonuses and penalties. *
Later embarrassed as it turns out that part of the Church of England’s’ own investment funds had indirectly invested in Wonga via a managed fund product.**
Consortium led by hedge fund Corsair Capital and backed by the Church of England announce investment in RBS spin-off: Williams and Glyn.
W&G will be the owner of 314 branches, 1.7 mlln customers, planned to be refloated and launched in 2015.
Church of England confirm W&G will ‘operate to the highest possible ethical standards’
W&G (Recently floated TSB) will market themselves as local community banks, both hoping to benefit from the backlash associated with the scandals of the big 5 high st banks and to take advantage of 7-day switching.
Regulation of payday lenders transferred from the office of fair trading to the FCA.
New legislation pledged by HM Government to cap the fees associated with payday lending.
Cumberland, Coventry Building Societies and Metro Bank amongst the Highest Rated
Big Four Ranked RED Barclays Lowest Rated. Laura Wiloughby said Barclays was dragged down by Libor/PPi and Number of customer complaints.
Research from Ethical Consumer
Winch, Telegraph, 16/09/2013 (Viewed 03/11/2-03)
Institutional Role of the Board in Managing Strategy /Transformation based upon Conduct
(Adapted from Garratt(2010) P33)
Main Board Responsibility
Data from External Stakeholders
Data from Internal Stakeholders
Complex Multi Dimensional: Multiple Agents Sentiments & Values
BOARD OF DIRECTORS
MEDIA & OPINION FORMERS
The case of the Co-op Bank
Good example of a stakeholder based business model .
Ethics based on wider stakeholders at the heart of the business.
Employee and Customer membership based participation in the running of the business.
Recent scandals following the merger of the Co-op with Britannia exposes the weakness of the mutual governance model when it comes to expansion of the business and promotion of laypeople to the board ?
Or was this a case of poor due diligence on both counts and in the case of capital exposures associated with the acquisition of the Verde bank branches from Lloyds, an example of the new Twin Peaks PCA and FCA working ?
The case of the Co-op Bank..
( Matt Cartoon, Telegraph Newspapers)
Critical Approaches to Banking Corporate Governance in the Wake of the Financial Crisis: Lessons from the Case Of Barclays in the Wake of the Libor Scandal and others ..
Some interim Conclusions, Recommendations and alternative tools of analysis ..
Story To Be Continued ..
ANY QUESTIONS ?
( Matt Cartoon, Telegraph Newspapers)
Astbury Marsden Reseach
Tobin, L ‘City’s female high-flyer total doubles’
Evening Standard Newspapers (28/10/2013)
BBC News (26/07/2013) Wonga row: Archbishop of Canterbury ‘embarrassed’ over church funds’
Bones, C (2011) ‘The Cult of the Leader: A Manifesto for more Authentic Business.’
John Wiley& Sons: Chichester
Bones, C (2007) ‘Engagement is at the heart of successful M&A’
Ivey Business Journal, Richard Ivey School of Business, London, Ontario
King, B (2013) Bank 3.0 Why Banking is no longer somewhere to go, but something to do
Marshall Cavendish, Singapore Kindle Edition
Konzelmann, S, Wilkinson, F, Fovargue-Davis M & Sankey, D ‘Governance Regulation and Financial Market Instability: The Implications for Policy’ Cambridge Journal of Economics (September 2010). Vol: 34, P929-954. (Advanced Access Publication 17 February 2010)
Konzelmann, S, Conway, N, Trenberth, L and Wilkinson, F, Corporate Governance and Human Resource Management. British Journal of Industrial Relations, Vol. 44, No. 3, pp. 541-567, September 2006.
Lagarde, C (NY Times Newspaper 10/05/2010) ‘Women, power and the challenge of the financial crisis’
Yin, R (2009) Case Study Research Design and Methods
Sage: Los Angeles
This paper is in part a partial summary of the Introduction, Literature review and summary of my final year MSc Dissertation submitted in partial fulfillment of the requirement for Corporate Governance and Ethics, Department of Management, Birkbeck College, University of London, September 2012
Lewis T (September 2012) ‘The contribution of corporate governance and corporate social responsibility, in the wake of the financial crisis 2008, to organisational commitment and employee engagement, within the Banking Sector: The Case of Barclays’
Lewis T (June 2013) ‘Critical Approaches to banking corporate governance in the wake of the financial crisis: The case of Barclays in the wake of the financial crisis and libor scandal.’
The views, findings and conclusions based in this paper are based entirely on evidence compiled from publically available sources.
Any views expressed in this paper are entirely the authors own personal views based upon the authors own academic judgment, conclusions and assumptions and in no way reflect the views of any organisation he may have worked for now or previously.