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    Corporate Governance, Bank Boards & Directors

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    Karishma Doshi
    This document discusses corporate governance, with a focus on governance within banks. It provides definitions of corporate governance, outlines the role and responsibilities of corporate boards, and notes some unique dimensions of governance for banks. Banks play a dual role in promoting good governance both internally and for their clients. Risks are also potentially higher for banks due to their handling of money and role in the broader economy. The document emphasizes that bank boards must assume responsibility for effective management through oversight and prioritize integrity, transparency, and responsibility in their governance.

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    Corporate Governance, Bank Boards & Directors

    Uploaded by

    Karishma Doshi
    10 views39 pages
    This document discusses corporate governance, with a focus on governance within banks. It provides definitions of corporate governance, outlines the role and responsibilities of corporate boards, and notes some unique dimensions of governance for banks. Banks play a dual role in promoting good governance both internally and for their clients. Risks are also potentially higher for banks due to their handling of money and role in the broader economy. The document emphasizes that bank boards must assume responsibility for effective management through oversight and prioritize integrity, transparency, and responsibility in their governance.

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    1.n.1balasubramanian

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    This document discusses corporate governance, with a focus on governance within banks. It provides definitions of corporate governance, outlines the role and responsibilities of corporate boards, and notes some unique dimensions of governance for banks. Banks play a dual role in promoting good governance both internally and for their clients. Risks are also potentially higher for banks due to their handling of money and role in the broader economy. The document emphasizes that bank boards must assume responsibility for effective management through oversight and prioritize integrity, transparency, and responsibility in their governance.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    10 views39 pages

    Corporate Governance, Bank Boards & Directors

    Uploaded by

    Karishma Doshi
    This document discusses corporate governance, with a focus on governance within banks. It provides definitions of corporate governance, outlines the role and responsibilities of corporate boards, and notes some unique dimensions of governance for banks. Banks play a dual role in promoting good governance both internally and for their clients. Risks are also potentially higher for banks due to their handling of money and role in the broader economy. The document emphasizes that bank boards must assume responsibility for effective management through oversight and prioritize integrity, transparency, and responsibility in their governance.

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    © All Rights Reserved
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    of 39

    Centre for Corporate Governance & Citizenship

    Corporate Governance, Bank Boards & Directors


    ______________________________
    Prof N Balasubramanian

    Presentation Outline
    CCG & C

    Overview of Corporate Governance Unique Dimensions of Banks Governance Bank Boards, Directors, & Governance

    Centre for Corporate Governance & Citizenship

    Overview of Corporate Governance

    Some Definitions
    CCG & C

    Corporate Governance is the system by which companies are directed and controlled
    Cadbury Report (UK), 1992

    to do with Power and Accountability: who exercises power, on behalf of whom, how the exercise of power is controlled.
    Sir Adrian Cadbury, in Reflections on Corporate Governance, Ernest Sykes Memorial Lecture, 1993

    A Canadian Definition
    CCG & C

    the process and structure..to direct and manage the business and affairs of the corporation with the objective of enhancing shareholder value, which includes ensuring the financial viability of the business.
    Where were the Directors? Guidelines for Improved Corporate Governance in Canada, TSE, 1994

    An OECD Definition
    CCG & C

    Corporate governance involves a set of


    relationships between a companys management, its board, its shareholders and other stakeholders ..also the structure through which objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.
    Preamble to the OECD Principles of Corporate Governance, 2004

    An Indian Definition
    CCG & C

    fundamental objective of corporate governance is the enhancement of the longterm shareholder value while at the same time protecting the interests of other stakeholders.
    SEBI (Kumar Mangalam Birla) Report on Corporate Governance, January, 2000
    7

    A Gandhian Definition
    CCG & C

    Trusteeship obligations inherent in company operations, where assets and resources are pooled and entrusted to the managers for optimal utilisation in the stakeholders interests.

    Some Further Definitions


    CCG & C

    Corporate governance is essentially about leadership:


    leadership for efficiency; leadership for probity; leadership with responsibility; and leadership which is transparent and which is accountable.
    - PRINCIPLES FOR CORPORATE GOVERNANCE IN THE COMMONWEALTH 9

    What is Corporate Governance?


    CCG & C

    The Manner in which a Corporation is Run


    Achieving its Objectives Transparency of its Operations Accountability & Reporting Good Corporate Citizenship

    The Processes & Operating Relationships that Best Achieve Organisational Goals
    10

    Some Governance Models


    CCG & C

    Finance or the Principal-Agent Model


    Markets for Capital, Managerial Talent and Corporate Control, Key determinant In general, profit-maximisation goal is cofunctional with social-welfare-maximisation Shareholders as Residual Claimants have superior control rights

    11

    CCG & C

    Exclusive Accountability to Shareholders


    Risk-bearing Entrepreneurs Residual Claimants Winding-up Ranking: Last in Pecking Order Boards Appointed by Shareholders Non-congruence of Stakeholder Interests

    12

    Residual Claimant Theory


    CCG & C
    shareholders residual claimants to the firms income. Creditors have fixed claims and employees remunerations negotiated in advance of performance .. Gains and losses from abnormally good or bad performance .. The lot of shareholders, who stand last in the queue .. Shareholders make discretionary decisions and bear consequences .. As such, .. Owners of business with important control rights

    The Economic Structure of Corporate Law, Frank H Easterbrook and Daniel R Fischel (1991) OUP

    13

    The Stakeholder Case


    CCG & C

    Firm Objective must be defined more widely than just shareholder-value-maximisation, since risk capital is not the only, or even the major input Residual Claimant Rights Not Universally Valid, eg, Circumscribed in case of pre-bankruptcy (US Chapter XI) Situations Other Such: Employees with Firm-specific Specialised Skills, Customers/Vendors with Substantial Stake in the Business, etc
    14

    Towards an Integrated Model


    CCG & C

    One-Size does not Fit All Circumstances A Combination of Shareholder/Stakeholder Models Necessary Some Argue, While Shareholder Claim Well Established, Stakeholder Claims Need to be Proved Tailor Model to Suit Unique Circumstances
    15

    The Corporate Board


    CCG & C

    Central to Corporate Governance


    Juxtaposed between Shareholders on the one hand, and on the other, Managers of the Entity (Cadbury) Follows Distancing between Ownership and Control (Berle and Means) Trustee for All Shareholders Loyalty & Commitment Always to Company
    16

    Board Role & Responsibility


    CCG & C

    Provide/ Exercise
    Leadership and Strategic Guidance Objective Judgement Independent of Management Control over the Company

    Direct and Control the Management of the Company Be Accountable at all times to All Shareholders
    17

    CCG & C

    Dimensions of Board Responsibility


    Direction involves
    Formulation & Review of Company Policies, Strategies, Budgets and Plans, Risk Management Policies, Top Level HR Policies, etc Setting Objectives & Monitoring Performance Oversight of Acquisitions, Divestitures, Projects, Financial and Legal Compliance, etc
    18

    CCG & C

    Dimensions of Board Responsibility


    Control Involves
    Prescribing Codes of Conduct, Overseeing Disclosure & Communication Processes, Ensuring Control Systems to Protect Company Assets Reviewing Performance & Realigning Action Initiatives to Achieve Company Objectives
    19

    CCG & C

    Dimensions of Board Responsibility


    Accountability Involves
    Creating, Protecting and Enhancing Company Wealth and Resources Timely and Transparent Reporting Good Corporate Citizenry including Discharge of Stakeholder Obligations and Societal Responsibilities without Compromising the Shareholder Wealth Maximisation Goal
    20

    Corporate Governance & Capital Market Drivers: A Conceptual Framework


    CCG & C REGULATION & LEGISLATION

    Regulators (SEBI/RBI)
    Lenders (Banks/ Depositors)

    Government Legislation

    Stock Exchanges Listing Agreements


    Shareholders/ Stakeholders

    Listed Corporations (The Board & the Executive)

    Market Operators (Rewards)

    Institutional Investors Press/Media (Pension Funds/Insce Cos) (Opinion Makers)

    Market Operations, Critique & Monitoring


    21

    Centre for Corporate Governance & Citizenship

    Is There More to Business than just the Financial Numbers?


    22

    An Enterprises Triple Effect on Society


    Sustainable Development Waste Control Equal Opportunities Education & Culture Community Regeneration

    Emissions Business Impact Energy Use Product Life-cycle Product Value Wealth Generation Productive Employment Ethical Trading

    Economic

    Human Rights Employee Volunteers

    The Triple-Bottomline Impact


    CCG & C economics

    Business Impact

    environment

    society

    24

    Governance Orientation Matrix


    CCG & C

    25

    CCG & C

    Governance Orientation & Sustainable Profits

    A G E N C Y

    SUSTAINABLE PROFIT LINE

    STEWARDSHIP
    26

    Centre for Corporate Governance & Citizenship

    Unique Dimensions of Bank Governance

    27

    CCG & C

    Unique Dimensions in Bank Governance


    Bank Role in Good Governance Two-fold:
    Governance Within Governance at Clients

    As Fund-Providers, Banks Generate Multiplier Impact on Economy Confidence & Trust Key Bank Distress, Failure, Dis-Repute Impacts Economy, Erodes Country Standing Globally
    28

    CCG & C

    Unique Dimensions in Bank Governance


    Stakeholder Dimension Very Strong in Banks Depositors Borrowers Employees Community Regulators Government
    29

    CCG & C

    Unique Dimensions in Bank Governance


    Banking Risk Potential
    Internal Fraud & External Fraud, Highly Likely, since cash/cash equivalents closest in grab-chain Employment Practices/ Workplace Safety Product, Process, Business Practices Damages to Physical Assets & IPR/Brands Business Disruption Major Threat
    30

    CCG & C

    Unique Dimensions in Bank Governance


    Non-Compliance (Intentionally or Otherwise) with Laws, Rules, Regulations Consequences of (Non) Compliance Risk in Banks
    Legal or Regulatory Sanctions Financial or Reputational Loss

    31

    CCG & C

    Unique Dimensions in Bank Governance


    Banks as Promoters of Good Governance
    Prescribing Governance Standards at Borrowers (IFC, CalPERS, FIs) Encourage by Preferential Lending Rates, Other Terms Discourage by Adversarial Lending Rates, Other Terms A Measure of Strengthening Protection of Bank Assets, Hence Good for Banks Own Governance
    32

    CCG & C

    Some Unique Dimensions of Public Sector Bank Governance in Developing Economies


    Political & Bureaucratic Interventions Banking as a Policy Instrument Supervisory Interventions, Micro-Managing Captive Resource of First Resort Suspect Independence of Supervisory Institutions Lack of Accurate/ Timely Accounting & Disclosure Practices
    33

    Centre for Corporate Governance & Citizenship

    Bank Boards, Directors, & Governance

    34

    CCG & C

    Some Unique Attributes & Responsibilities of Bank Boards &Directors


    Assume Responsibility for Effective & Efficient Management, through Oversight Mechanisms Integrity is Indivisible; Role Model Director is the Most Persuasive Statement of Ethical values Consider Transparency as the Norm. Confidentiality should not lead to Opacity
    Continued

    35

    CCG & C

    Some Unique Attributes & Responsibilities of Bank Boards & Directors


    Ultimate Responsibility for True and Fair Presentation Rests with the Board Poor Leadership Infects.
    Adapted from Guidance for the Directors of Banks, Jonathan Charkham, (2003) [OECD-World Bank] Global Corporate Governance Forum, Washington

    36

    Some Closing Thoughts


    CCG & C

    Right-Size the Board and its Composition Complementary Skill-Sets & Financial Acumen Essential Fit & Proper Criteria for Membership More Focus on Oversight, Less on MicroManagement Contribution as Important as Surveillance
    37

    Some Closing Thoughts


    CCG & C

    Minimise Conflict of Interest Potential Respect Minority / External Shareholders Rights (Listed Public Sector Banks) Bank Boards to Go That Extra Mile: Go Beyond What is Prescribed to What is Appropriate That Way lies Greater Valuations & Better Reputations
    38

    Centre for Corporate Governance & Citizenship

    Thanks for Your Attention

    39

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