Some banks which performed best during the crisis flouted the rules of good corporate governance: Santander had a familial culture and a powerful executive chairman. And some banks which did worse were paragons of good governance: Citigroup and Lehman Brothers employed powerful outside directors (including, in Lehman’s case, an economist known as “Dr Doom”).
A lot of factors are into play and corporate culture is probably more important than any monitoring system put in place. From the article:
(..) the study does at least suggest that one should not expect too much from corporate governance. Good corporate governance on its own will not protect companies from taking excessive risks. They need to tackle the problem directly, by setting up better risk control, rather than indirectly by ticking various corporate-governance boxes.
This conclusion is a very interesting one. It comes down to acknowledging that dealing with a multi-dimensional world (risk, opportunity, strategy, etc.) can not be replaced by one metric under the codename governance. This is a mistake often made in a different setting. We’ll definitely come back to this theme in a later post…