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Thought leadership The leaders of nine of the world’s pre-eminent financial institutions discuss the challenges facing the global banking industry: restoring trust among policymakers and stakeholders; avoiding regulation that will hurt economies as well as banks; bringing compensation back into line; and making money in a radically changed world. Lloyd Blankfein, chairman and CEO, Goldman Sachs: How to safeguard the value of risk capital |
| Ken Lewis, chief executive and president, Bank of America: Global reach and capital remain king |
| Bob Diamond, president, Barclays: Banks must work with regulators to shape a prosperous future |
| Paul Calello, chief executive, Credit Suisse: We must apply the lessons of the crisis |
| Josef Ackermann, chairman of the management board, Deutsche Bank: Banking industry must regain trust |
| Stephen Hester, chief executive, RBS Group: Earning our way back to respect |
| Emilio Botín, president, Banco Santander: The basics don’t change |
| Mike Rees, chief executive of wholesale banking, Standard Chartered: The world has changed: so must banks |
| Dieter Rampl, chairman, UniCredit Group: Putting the teeth into corporate governance |
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Bailouts, stress tests and loan defaults are now dominating the news of the once quiet banking industry. In one year, nine out of the 20 most important banks in Europe have changed their chief executive or chairman. The German government is creating bad banks. And in Belgium, the Fortis annual meeting had to be cancelled after angry investors started throwing shoes at bank management. The message to bankers could hardly be louder or clearer. The time for action, and for real change, is here. The only question now is: are we going to make knee-jerk decisions in a time of turmoil or are we going to take rational, well-considered actions that can lead to long-term, sustainable growth and restore trust in our banks and in the financial system?
Economist Paul Romer once quipped: “A crisis is a terrible thing to waste.” For political leaders and financial regulators, this may be welcome advice. But it is difficult for bankers to put this wisdom to good use because the same turmoil that a politician might regard as an opportunity can actually stymie organizational change within the orderly confines of a large bank.
The only real solution lies in more effective corporate governance, and I can say with certainty that the top management and boards of most European banks have now made this their number one priority. These bankers know that good governance is not something that is achieved overnight.
The fact is, many boards had begun recognizing the importance of improving their corporate governance – and were actively pursuing improvement – well in advance of the sub-prime shock to our industry.
Two years ago at UniCredit Group, for instance, we revised our board committee structure and scope to enhance the reporting and counsel we receive. We established a framework of four committees dedicated to this goal: permanent strategy; corporate governance, HR and nominations; internal control and risks; and remuneration. The counsel of these committees informs our board decisions to ensure close alignment with our long-term strategic goals.
At UniCredit Group we have also put in place a remuneration policy that directly links executive pay to performance and ties rewards to long-term value creation for stakeholders. We are aligning incentive payout levels with overall company risk and cost-of-capital adjusted profitability. And we are working to guarantee the affordability of bonuses by setting caps on performance-related payouts that are appropriate and consistent with market practice.
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Dieter Rampl, chairman, UniCredit Group |
Obviously real corporate governance reform cannot be a quick fix. Long-term problems demand long-term solutions. During the crisis, the financial world quickly learned that recognizing and achieving sound governance are two very different things. The latter demands adherence to some basic, time-honoured principles. They include transparency, clear policies and open dialogue. When any one of these principles is violated, sound governance is at risk. In addition, of course, certain concrete corporate mechanisms must be in place to successfully achieve sound governance. Most European banks are now taking the necessary steps to put more teeth into corporate governance. They are making sure, for instance, that risk management policies are clear and unambiguous and that everyone in the bank understands them. Large, multinational banks are taking the steps necessary to have the people and information systems in place to better monitor, manage and control all activities within their enterprises. They are toughening requirements for internal compliance with bank policies. And they are working to achieve transparency, make their policies clear and maintain an open dialogue with stakeholders.
Sound corporate governance is not a quick fix, but it is the most powerful means we have to ensure that we fulfil our obligations to stakeholders and the public, and that we earn their confidence and the good reputation that accompanies it. It identifies and helps us apply best practices, clarifies our risk management policies and is a key driver of corporate value and market evaluation. Only by adopting and implementing clear and effective rules can financial institutions fully leverage their strengths. Fundamentally, sound governance underlies all aspects of corporate sustainability.
Governance can be used to foster something that goes beyond rules and policy implementation. I believe sound governance fosters a commitment to best practices at every level of a company. It is a means of promoting shared values among our employees and a way to put our commitment to shareholders and customers into action.
Strong, well-structured corporate governance gives any organization a sharper and more clearly articulated focus. It provides assurance that management performance will be effectively overseen. It defines a less risky company. And it means that investors will be better able and more willing to provide the company with the capital it needs.
Most important of all, however, is the fact that sound governance is about trust. Today, there is nothing in the world more vital to the future success of financial institutions than the restoration of trust. Sound governance provides the one clear path that banks now must travel if they are serious about restoring confidence in the markets, belief in our financial system and the trust of the public.
In good times or bad, sound governance must always be job number one, for it will always be our one clear road to successful, sustainable growth.
