Governance Beyond the Boardroom
Principal Investigator: Dr Andrew Tucker
Greg Spiro
Elizabeth Nicholson
Presentation of Intellectual Framework
A Failure of Corporate Governance
Narrow Definition doesn’t work:
Internal controls to make sure
shareholders get a reasonable
return on investment.
‘Failures in corporate governance
arrangements caused the financial
crisis”
- OECD, 2009
"The banks should be using their profits
to rebuild their balance sheets, not
to hand out huge bonuses while the
rest of the economy picks up the
pieces for the follies of finance. But
the change of culture needs to go
far deeper than bonuses."
– George Osborne, 2009
A Gap in our Understanding
Corporate Governance literature
Financial Sector literature
Corporate Culture literature
Governance Beyond the Boardroom
Corporate governance traditionally addressed at BoFI board level. Are
boards fit for purpose?
 lack of understanding of complex products, arrogance, recklessness
 innovation, technical sophistication, de-layered structures
 cheap money, bubble behaviour, hubris
‘Democratising’ boosts performance/motivation but broadens scale of the
‘theatre’ in which risk has to be managed.
Awareness beyond the Boardroom of implications of actions and
behaviours on commercial performance and long-term resilience of the
firm.
H1. Governance issues can be examined for their impacts
outside as well as inside the boardroom.
Improving the Model
Improving the Model
Role of the SubAgent
• Information asymmetry between
principal & agent, agent & sub
agents
• Complexity of products =
effective SA independence
• The larger banks are so complex,
global, and multi-disciplinary that
they are forced to adopt a
subsidiarity model
• Control aspects of governance
break down in innovative,
entrepreneurial environments.
Building the P-A-SA model
Need to look beyond the endogenous factors:
• ‘groupthink’ in the markets
• environment of “turbo capitalism”
• loosening regulatory oversight
Boom times provide numerous conditions for misconduct by
SAs:
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bonus linked to trade size rather than profitability
SA not understanding implications for A’s long-term success
lack of risk knowledge and experience by A’s agents
surging profitability led A and P to adopt SA’s short-term focus
H2. The Board is not the sole guardian of corporate
governance issues.
Governance as Risk Management
A Flawed Model
• Securitisation model of
originate-and-distribute banking
loans designed to circumvent
accountability for the loan by
offloading it to a third party
• Compliance, audit function
circumvented
• Light touch codes of conduct
unenforced by trade
associations, regulators
A Flawed Approach
• Longlist of fines for poor governance
• Practitioners fall back on “the market knows best”
• Governance falls within dominant risk management
paradigm
H3. Using a risk management analytical approach to
governance fails to understand the interdependent
dynamics of governance issues.
Governance as Culture
A New Cultural Approach
• Who are banks’ core
stakeholders?
• prevalence of “chequebook
diplomacy”
• how to identify “alpha”?
• difficulties in measuring
performance
• investment vs. retail banking
traditions
• absence of a widely-recognised
professional standard
• extreme discrepancies between
effort and reward
Culture as a bar of soap
“the way we do things around here”
“the bonus culture…the culture of greed”
“teamwork and long hours”
“how you behave when you think nobody’s looking!”
Culture: A textured definition
Culture is a pattern of shared tacit
assumptions that was learned
by a group as it solved its
problems of external adaptation
and internal integration, that
has worked well enough to be
considered valid and, therefore,
to be taught to new members as
the correct way to perceive,
think, and feel in relation to
those problems.
- Edgar Schein: Organisational
Culture and Leadership
Artefacts
Espoused Values
Basic Assumptions
The Dark Side of the Moon
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Discussables & Undiscussables
Dos & Taboos
Sound of Silos
Broader Definition: the rules,
processes and behaviours that ensure
(i) reasonable return on investment for
shareholders, (ii) sustainable business,
and (iii) constructive relationships with
stakeholders.
H4. Governance is better understood and managed as a
cultural phenomenon.
Governance Beyond the Boardroom
http://www.business.bbk.ac.uk/news-andevents/governance-beyond-the-boardroom