Non-Shareholder Voice in Bank Governance: Board Composition, Performance and Liability

Abstract

Starting from the well-evidenced fact that banks with shareholder-focussed corporate governance fared worse in the financial crisis than those without, this paper considers various initiatives and proposals to re-orient board rules in relation to banks. The paper considers three type change. First, increased influence over board composition and behaviour without granting new rights of board representation to any group of persons. In this section we look at influence for the general public interest in bank stability via an increased role for bank supervisors in the selection and monitoring of bank directors and significant bank executives, and at an increased role for long-term creditors, in particular bondholders. The former is partly already in place and for the latter we suggest ways in which changes could be made, mainly via contract. Second, we look at influence via board representation, mainly for creditors but also for the public interest. We are sceptical about the scale of the benefits such representation is likely to afford and point out some of the costs of these proposals. Finally, we look at enhanced liability, whether regulatory, criminal or civil. There are many proposals for change in this area, some very far-reaching. We doubt the benefits of enhanced criminal liability, but think that more enforcement effort, especially in the regulatory field, but also as to civil liability, would yield positive results.

Keywords: Corporate Governance of banks, role of debt-holders and creditors, civil and criminal liability of bank directors, fit and proper, bank supervision, board composition, enforcement

JEL Classification: G21, G3, K22