Rebuilding Trust in Banks

An outline of the core principles and strategies required to restore the credibility of the global finance industry Since 2008, the global financial industry has lurched from crisis to crisis, calamity to calamity, resulting in an epic loss of public trust in banking and financial institutions. Rebuilding Trust in Banks argues that this series of disasters have usually been the result failures of leadership and governance, combined with unenforced systems of checks and balances. Often, leaders lose their way, believing their own hype and buying into their own propaganda. The more successful these leaders are initially the greater their self-confidence grows along with the certainty that they re right. The result is a dangerous hubris with no countervailing power to stop or change reckless, unethical, or self-interested strategies. This book offers a solution, with useful benchmarks for corporate governance and a global perspective. Features effective best practices for ensuring good corporate governance and responsible leadership in banking and finance Written by a renowned expert in corporate governance with more than 40 years of experience, particularly in Asia Intended for corporate leaders and board members in financial companies, as well as regulators, advisors, and students If banks and other financial institutions truly want to rebuild the trust they once enjoyed, this practical and prescriptive guide offers effective best practices that can and should be widely implemented throughout the industry.

An outline of the core principles and strategies required torestore the credibility of the global finance industrySince 2008, the global financial industry has lurched fromcrisis to crisis, calamity to calamity, resulting in an epic lossof public trust in banking and financial institutions.Rebuilding Trust in Banks argues that this series ofdisasters have usually been the result failures of leadership andgovernance, combined with unenforced systems of checks andbalances. Often, leaders lose their way, believing their own hypeand buying into their own propaganda. The more successful theseleaders are initially the greater their self-confidence grows alongwith the certainty that they're right. The result is adangerous hubris with no countervailing power to stop or changereckless, unethical, or self-interested strategies. This bookoffers a solution, with useful benchmarks for corporate governanceand a global perspective.* Features effective best practices for ensuring good corporategovernance and responsible leadership in banking and finance* Written by a renowned expert in corporate governance with morethan 40 years of experience, particularly in Asia* Intended for corporate leaders and board members in financialcompanies, as well as regulators, advisors, and studentsIf banks and other financial institutions truly want to rebuildthe trust they once enjoyed, this practical and prescriptive guideoffers effective best practices that can--and should--bewidely implemented throughout the industry.

Preface xiAcknowledgments xixChapter 1 Leadership: A Force for Change 1Napoleon--Leadership Lessons 13Conclusion 17Notes 17Chapter 2 Leadership: From Success to Failure 25Stan O'Neal 28Jimmy Cayne 30Dick Fuld 33Fred Goodwin 37Conclusion 42Notes 43Chapter 3 Setting the "Tone at the Top"47Conclusion 60Appendix 3A Board Questions Regarding the "Tone at theTop" 63Notes 68Chapter 4 Ethics in Finance 71Systemic Integrity 72Market Integrity 75Regulatory Integrity 78Organizational Integrity 81Personal Integrity 81Four Ethical Lenses 90Conclusion 93Notes 94Chapter 5 The Role of the Board: Theory and Reality97Blurring of the Boundaries 99Role of the Chair 113Role of the CEO 116Role of Committees 117Why Boards Failed 117Conclusion 121Appendix 5A The Role of Board Committees 123Notes 126Chapter 6 Leadership, Governance, Strategy, and Risk131Choice of Strategy 133Avoiding Cultural Risk 144Failure of Effective Implementation 146Questions Regarding Risk 148Conclusion 154Appendix 6A Board Questions Regarding Strategy 156Appendix 6B Board Questions Regarding Risk 165Notes 170Chapter 7 Developing Suitable Leaders 175Succession Planning 175Talent Management 186The Impact of Remuneration and Reward on the Suitability ofLeaders 193Conclusion 194Appendix 7A Board Questions to Ensure Suitable People 197Notes 203Chapter 8 Ensuring Organizational Integrity 205Creating a Compatible Culture 205Problems of Compliance 209Instituting Appropriate Controls 215Conclusion 223Appendix 8A Creating a Suitable ERM Framework 226Notes 241Chapter 9 Governance: The Wise Restraints That Set Men Free245Why Corporate Governance Matters 245Three Components of Good Governance 251Overlaps, Underlaps, and Turf Wars 260Regulatory Arbitrage Based on Different Philosophies ofRegulation 261Inadequate Sanctions and Penalties 262The Way Forward 263Conclusion 264Notes 265Chapter 10 Leadership with Governance: Rebuilding Trust inBanks 271Leadership Alone Is Not Enough 271Governance Failed 272What Is Needed to Rebuild Trust 276Conclusion 286Notes 290About the Author 295Index 297