What Governance Lessons Should be Learnt from the Société Générale's Kerviel Affair?

Abstract

Belying its reputation as a pioneer in derivative product management and market risk control, the French banking institution Société Générale (SG) suffered in January 2008 the largest ever trading loss in financial market history. The origins of this loss and the way in which the bank managed the situation via its President Daniel Bouton and Board of Directors is highly instructive at several levels. This text will try to draw lessons to improve governance of large listed international banks. Such lessons, both positive and negative, can be divided into three categories: communications with regulators, markets and shareholders; the structure of internal control bodies and Board reports; and the organisation and composition of the Board itself, notably in regards to the role of a Crisis Management Committee, which would benefit from the defined of a specific status and the identification of more clearly identified borders within the Board of Directors.

Keywords: Governance, Board of Directors, Crisis Management Committee, Banks, Stock Markets