Abstract
Banks are special, and so is the corporate governance of banks and other financial institutions. Empirical evidence, mostly gathered after the financial crisis, confirms this. Banks practicing good corporate governance in the traditional, shareholder-oriented style fared less well than banks having less shareholder-prone boards and less shareholder influence. The special governance of banks and other financial institutions is firmly embedded in bank supervisory law and regulation. Most recently there has been intense discussion on the purpose of (non-bank) corporations. For banks stakeholder governance and, more particularly, creditor or debtholder governance is more important than shareholder governance. The implications of this for research and reform are still uncertain. A key problem is the composition and qualification of the board. The legislative task is to enhance independent as well as qualified control. The proposal of giving creditors and even supervisors a special seat in the board is not convincing. Other important special issues of bank governance are for example the duties and liabilities of bank directors in particular as far as risk and compliance are concerned, but also the remuneration paid to bank directors and senior managers or key function holders. Claw-back provisions, either imposed by law or introduced by banks themselves, exist already in certain countries and are beneficial. Much depends on enforcement, an understudied topic.
Highlights
General and Sector‐specific Corporate Governance1.1 Corporate Governance of Private Listed CorporationsCorporate governance has become a key topic in international practice and economic and legal theory.1 The definitions of corporate governance vary
The special governance of banks and other financial institutions is firmly embedded in bank supervisory law and regulation
External corporate governance can be understood as the disciplinary effects exercised in particular by the takeover market on the directors and, to a certain degree, effects exercised by the markets for directors, products and services
Summary
Corporate governance has become a key topic in international practice and economic and legal theory. The definitions of corporate governance vary. Empirical studies looking at corporate governance in the banking context—and demonstrating the unique characteristics which ensue—are only a more recent development. Beltratti and Stulz (2012); Ferreira et al (2016), with further references Agreeing in this regard, van der Elst (2015), p 32, but with the remark that the composition of boards is dissimilar as between banks and non-banks, and as between countries. Banks; exactly the opposite may be true This is the case, for example, as regards director independence, which according to recent studies can carry negative effects in the case of non-financial corporations, whereas expertise and experience are of much greater value, at least when obvious conflicts of interest are avoided. Findings warranting a differentiated assessment are held up against one another despite their embodying nuanced differences that may reflect a dissimilar time horizon in the studies, an inadequate account of the interdependence of certain factors and, above all, country- and path-dependent differences resulting from legal regulation and cultural circumstances.
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