Who's to blame for mounting losses at big banks like Deutsche Bank, Credit Suisse and Barclays? There's already been plenty said about the economy, tough regulation and fines for past misconduct. But what about their boards?
Take Credit Suisse, whose CEO Tidjane Thiam made the startling admission last month that he and other key decision makers were kept in the dark about illiquid trading positions that contributed to about $1 billion of writedowns in the last two quarters. Shareholder Harris Associates has called for the bank to strengthen its board, highlighting the importance of picking directors that have the needed expertise to oversee complicated institutions.
If a big investor links "blunders" at the bank to a possible lack of expertise among the overseers -- which poached its CEO from the insurance industry -- time commitments also deserve a closer look. A board that lets an outsider run its company must also to prove it's up to the job of making sure nothing gets missed.
Counting directors' other responsibilities can show if they're juggling too many competing time commitments -- known as "overboarding." All things being equal, the fewer outside responsibilities a board member has to juggle, the better.
Credit Suisse's board appears to be busier than peers. A Bloomberg analysis of directors' competing commitments disclosed in the latest annual reports of Europe's top seven investment banks puts Credit Suisse in the lead with an average of a little over 6 commitments per director. The average for the whole group is almost 4.
Some observers in this corner of the corporate-governance world focus on obligations to publicly traded companies, which will have weightier disclosure requirements. From this perspective, European banks look to be in a much better position, with around one outside commitment per director on average.
But this is only part of the picture. Even a small lobby group or political job can be of significance to investors, according to Swiss exchange SWX's disclosure guidelines. And private entities can also be complex to supervise, according to MSCI corporate governance expert Ric Marshall, especially where big budgets, balance sheets and real-estate assets are concerned.
Zooming in on individual directors can reveal some big disparities. Credit Suisse Chairman Urs Rohner is a board member of one outside listed company -- GlaxoSmithKline -- alongside responsibilities at 14 other associations, universities, companies and foundations. Director Jassim Bin Hamad J.J. Al Thani is chairman, CEO or board member at seven entities including Qatar Islamic Bank, Al Mirqab Capital and reinsurer Q-RE LLC.
Both meet Credit Suisse's guidelines and best practice for the number of outside commitments in terms of pure numerical limits, and they'll both have had to affirm that they have enough time to perform their duties. But it's fair for outside observers to demand finer scrutiny, not least because the complexity of these varied outside roles may differ widely.
There is a positive side for directors having fingers in many pies. Serving on multiple boards boosts their experience and their ability to oversee management. There's also the perennial question of finding qualified directors, and restricting the pool too tightly could worsen this problem.
Cutting commitments isn't a cure-all in itself for boards that are found wanting. Deutsche Bank has a much lower ratio of external memberships, at just 2.6, and its shares are also languishing. This is where other factors, such as age and tenure, can come into play.
Yet these are trying times for shareholders still waiting for an end to battered valuations. Banks may need to do more to show they haven't gone overboard.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Lionel Laurent in London at email@example.com
To contact the editor responsible for this story:
Jennifer Ryan at firstname.lastname@example.org