The largest global banks must improve their corporate governance to assure stability in the wake of the credit crisis, according to a report from the Group of 30 forum of finance leaders.
Boards of directors that have eight to 12 members and people with experience as chief executive officers or regulators are preferable, according to today’s report, which also encouraged banks to split the CEO and chairman roles.
Jean-Claude Trichet, the former European Central Bank president who took over the G-30 in November, highlighted the contribution of poor corporate governance to the crisis. The report didn’t recommend specific changes and advised firms to build a culture of governance rather than focus on processes and rules.
“The paramount aim of our new report is to promote changes in governance behavior, which demands changing the ways in which people think so that they can successfully induce the specific, tailored reforms that will enhance governance in their institutions,” Trichet said in a statement accompanying the 92- page report.
Boards, which should view success over a time frame of five to 20 years, must challenge executives over strategic proposals and take an active stance on risk management, according to the report. It’s unacceptable to take risks that are too complicated for a board to understand, the authors wrote.
“Since the crisis there has been an unprecedented process of financial regulatory reform to remedy these serious weaknesses that had become apparent,” David Walker, a senior adviser at Morgan Stanley (MS) who worked on the report, said in the statement. “But better regulation by the public sector needs to be matched by private-sector initiative in the form of better boardroom performance.”
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