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Four (cynical) visions of corporate governance

Four (cynical) visions of corporate governance
July 22, 2015
Four (cynical) visions of corporate governance

The politburo

For emerging markets-focused banking group Standard Chartered (STAN), good governance means “having the right culture, structures and processes in place”. That is, at least, what its website says on the matter. For new boss Bill Winters, improving governance has meant reducing the power of his deputy Mike Rees, and bringing more matters under his direct control through a new management team that Mr Winters will lead.

The company is going to “rationalise” its business across four regions and three client businesses. The bank hopes to improve accountability and cut costs, but it is clear the new CEO wants his hand more firmly on the tiller. From October, Mr Winters will relieve Mr Rees of responsibility for those three main areas of the company’s business: corporate and institutional banking; commercial and private banking; and retail banking. Let’s call this the ‘standing committee’ approach: a bid for accountability that means more power for the chief.

The blame game

A retrospectively viewed governance failure is a familiar device to try to move the narrative forward from less-than-celebrated historical conduct. Following public outcry over the actions of its Swiss private bank, HSBC (HSBA) boss Stuart Gulliver apologised to MPs in February about the “lack of controls and the practices that now, judged with the benefit of hindsight, we would not be at all comfortable with if they were happening today”.

Company boards spend serious money on risk assessments to make sure they can demonstrate the work they have done to head off risks. For companies as extended as HSBC and rival Royal Bank of Scotland (RBS) became, failed corporate governance structures are an established part of the excuse framework, just as they have been in Westminster. That is to say, ‘I inherited the problems of this department, and I’m going to stick around until they are fixed.’

The fig leaf

Gestures designed to show support for corporate governance can be used to mask the boardroom drama underneath. Notable here is the departure of Barclays (BAR) deputy chairman Sir Mike Rake, who – it was announced earlier this month – is to follow the fired chief executive Antony Jenkins out of the door, though quite when was the subject of some immediate debate. The company was initially telling journalists Sir Mike would be around until the end of the year, before the company, reportedly under some pressure from the Prudential Regulation Authority, had to pledge that he would stay at the bank until a permanent chief executive was in post. “This is to ensure that the highest standards of corporate governance are maintained,” the company assured the market.

The regulator’s concern was understandable here: an executive chairman lacking the scrutiny of the deputy for an undetermined period of time severely reduces governance safeguards, particularly at such a large institution, and one that is in the midst of a restructuring programme.

The doormat

Of course, there is always the straight forward walk-over. “A chief executive should not go on to be chairman of the same company,” reads the UK corporate governance code. Oil producer Genel (GENL) decided to explain rather than comply with this tenet when it boosted ex-BP chief Tony Hayward from the top job to the head of the board.

Why does any of this matter? Just consider the case of Sir George Mathewson, the successful chief executive of RBS who became its chairman between 2000 and 2006. In Ian Fraser’s ‘Shredded: Inside RBS, the Bank that Broke Britain’, he names Sir George Mathewson as one of the people ultimately sharing responsibility for the bank’s downfall, with criticisms including that he was too “hands-off” dealing with the marauding CEO Fred Goodwin, whom he appointed, and “did not do enough” to check the rise of securitised loans.

Corporate governance has to be more than a tool to spread the blame, or the mood music playing while people make unfettered decisions that have a huge impact on our corporate landscape. Investors increasingly acknowledge the benefit of decent governance to long-term stability, but arguably are too happy to accept quick fixes that boost short-term returns, even if they increase the governance risk being run.