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Banks & Financial Institutions

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Corporate Governance within banks should not be a mystery following three key reports issued in 2010 by leading bodies. These were issued by OECD on Conclusions and Emerging Good Practices to Enhance Implementation of the OECD Principles,(“OECD”), the European Commission Green Paper on Corporate Governance in Financial Institutions (“EC”) and the Basel Committee on Banking Supervision: Principles for Enhancing Corporate Governance (“Basel Principles”). The reports apply to all banks regardless of size and ownership structure. They offer the equivalent of a clinical post mortem of why corporate governance failed in so many banks which means that all banks have access to a blueprint of what went wrong and why it went wrong. This expensively acquired learning should be seen as an invaluable and low cost, indeed free, resource from which all banks can and should benefit.

The collective conclusions of OECD, EC and Basel are hard hitting:

  1. Improve board practices. Boards need more effective oversight of senior management, risk management and improved corporate culture supported by codes of conduct.
  2. Improve board professionalism. Boards cannot be dominated by a chairman or CEO, must have a diverse membership with appropriate technical skills, robust and informed independent directors, strong polices and an independently facilitated board evaluation.
  3. Improve risk management. Risk management processes must be independent, competent, adequately resourced and integrated.
  4. Improve compensation practices for the board and across the bank. Compensation should be aligned with and reward prudent risk taking and long term, not short term, objectives.
  5. Improve oversight of senior management. Board oversight of senior management ensuring the banks activities conform to both strategy and risk appetite and that there is organizational clarity for both delegation and accountability.
  6. Improve disclosure and transparency. Banks should increase the level of disclosure and transparency on all corporate governance matters.
  7. Rigorously challenge complex or opaque corporate structures. The corporate structure should not be unnecessarily complex as complex structures create or conceal risks.
Majlis has the expertise to guide banks through the application of corporate governance to its unique circumstances. We have prepared a number of detailed ARTICLES relating to corporate governance and banks. Below you can check some of the articles.

For more information please contact the Corporate Governance Department of Majlis Partners