It’s a commonplace that scrutiny of banks and other financial services institutions is increasing. Clarifying the causes of this scrutiny is an important first step towards responding effectively. In short, these causes are:
- Governance and regulatory failures: high-profile scandals and incidents of fraud, theft and other mismanagement have highlighted weaknesses in banks’ internal cultures and systems.
- Government action to re-regulate: public outcry has motivated governments to impose more strict controls on corporate behaviour, including new governance requirements and giving regulators greater enforcement powers.
- Shareholder activism: individual and institutional shareholders are responding to governance failures by demanding greater transparency and adherence to stated values. Non-confrontational activism can be highly effective alongside more interventionist approaches such as strikes against remuneration packages.
- ESG as a proxy for long-term business sustainability: an organisation’s environment, social and governance (ESG) policies and performance is becoming a ‘short-hand’ for its long-term ability to avoid scandal, adapt to change and respond to stakeholder demands.
Banks and financial institutions that disregard these factors risk repeating mistakes and regulatory, shareholder and public sanction.
As they are all governance-related, the remedy ultimately lies in better governance. We suggest that the best approach is ‘Modern Governance’. This relies on adopting a unified software package to provide a suite of tools to help ensure good governance. Secure communication and collaboration, board papers, voting, minutes, reports and more can all be accessed from desktop and mobile devices alike, allowing directors to participate in meetings and subcommittees, answer questions and respond to crises at any time and from any location.
Modern Governance platforms typically include advanced data analytics. Providing fresh insights and practical, usable business intelligence is another key benefit. Such platforms also make it easier to monitor culture and diversity, and manage a board skills matrix to assist with succession planning. Finally, they can empower company secretaries to concentrate less on administration and more on exercising their skills and judgement to add value to their organisation.
The ‘governance premium’
One benefit of increased scrutiny is that companies with existing investments in good board governance should begin to see a stronger ‘governance premium’. India’s Federal Bank Managing Director and CEO Shyam Srinivasan noted in an interview with Cogencis that “the distinction between great governance versus less is going to be much more visible … I think the governance premium will come through very clearly”.
These benefits can be split into two broad, but closely related, categories: better market performance and improved reputation.
- Better market performance: it’s well-established that better-governed companies, especially those with more diverse boards, typically outperform their market averages. This is thanks to good corporate governance’s inherent benefits, including greater visibility of processes, better risk management and superior performance from the board of directors.
- Improved reputation: demonstrating good governance can be an effective way to gain market advantage. Customers want to deal with companies they trust and with which they feel an affinity. A bank or financial institution’s reputation and ‘social license’ is a precious asset; enhancing it with good governance is a strategically smart move as it makes the organisation better able to survive a crisis with its market position intact.
Governance for all?
There are further implications of regulatory failure; perhaps ironically, in light of perceived government failures to police corporate behaviour, citizens expect companies to take up the slack.
For example, the Committee for Economic Development of Australia (CEDA) found in its Company Pulse 2019 survey that 78% of the general public support corporate leaders speaking out on issues of national importance, and 72% believe businesses should place equal importance on economic, environmental and social performance.
Banks and financial institutions supply necessary services to their customers, making them more vulnerable to problems arising from governance failures – and more likely to benefit from the advantages of good governance.
Adopting a Modern Governance platform will help any bank
February 9, 2021
Governance Trends Shaping 2021: 4 Priorities to Drive Success
The COVID-19 crisis, new workplace paradigms, extreme climate change, political and economic volatility, and urgent calls for racial justice have driven a shift to virtual operations. This shift, alongside a move to stakeholder-centric capitalism, has elevated “digital resilience” to a core focus among leadership. These principles must now be translated…
January 29, 2021
Business Continuity Strategy: Options, Best Practice Approaches and Examples
There’s no shortage of things to consider when you’re upgrading your business continuity strategy. For instance: What should your plan cover? What are the critical inputs to the business continuity strategy? What are the different approaches and solutions available? What should the recovery strategies look like within your business…
February 26, 2020
Is your governance up to scratch? Let the ASX recommendations be your guide
With 2020 well underway, prudent businesses will be double-checking their corporate governance principles to make sure they’re up to the task. Justice Owen, in the HIH Royal Commission, described corporate governance as “the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled within…