Abstract

In the aftermath of the Great Recession, shareholders and regulators expect financial institution boards of directors to play an active role in risk management. To date, however, shareholders, policymakers, and academics have ignored a critical shortcoming: the directors of the United States’ largest financial institutions are too busy to fulfill their governance responsibilities. Many financial institution directors hold full-time executive positions, and most serve on the board of at least one other company. Although these outside commitments provide important learning and networking opportunities, they also contribute to cognitive overload and limit the time that directors spend assessing strategy and risk. This Article argues that overcommitted directors impair the governance of large financial institutions. These firms, by virtue of their complexity and systemic importance, require enhanced risk monitoring that busy directors are ill-equipped to provide. Nonetheless, the boards of many large financial institutions remain alarmingly overcommitted. Through a series of case studies — including Wells Fargo’s fraudulent accounts scandal and JPMorgan’s London Whale trades — this Article explores how busy directors inhibit oversight of management, increase the risk of firm failure, and could cause the next financial crisis. This Article proposes a series of reforms to alleviate director overcommitment and thereby enhance the stability of the financial system.

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.