Page 186 - Accelerating out of the Great Recession

A NEW MANAGERIAL MIND-SET

how some were able to reap the benefits from betting the
bank while subsequently suffering none of the downside.

■ REDEFINING CORPORATE GOVERNANCE ■
The failure of large parts of the banking system was not simply
due to rogue traders or greedy bankers. There were serious fail-
ures in risk management, control, executive oversight, and inde-
pendent scrutiny. There has already been a scramble to address
these issues. Regulators and politicians have been falling over
themselves urging fundamental changes to fix the glaring weak-
nesses. Some banks have already moved to strengthen their
boards, replacing worthy—but not financially proficient—
nonexecutive directors with seasoned ex-bankers.
The logic is clear. The most senior overseers of the company
need to be fully familiar with the technical workings of the busi-
ness in order to be able to assess the risks that management is
taking. And this is not just true of the nonexecutives. Senior exec-
utives need the right skills if they are to guide their businesses
properly. Thus, over time, bank boards around the world must be
strengthened considerably in terms of basic technical capability.
This is already happening in the United Kingdom, where steps
have been taken to strengthen corporate governance. In July 2009,
Sir David Walker, former chairman of Morgan Stanley
International, completed his government-commissioned review of
the corporate governance of financial institutions. He said that the
“proposals are designed to improve professionalism and diligence
of bank boards. . . . If this means that boards operate in a some-
what less collegial way than the past, that will be a small price to
3
pay for better governance.” His recommendations included a 50

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