A pragmatic approach to reform of banking governance and culture

A pragmatic approach to reform of banking governance and culture

Monday, 17 October 2016 - 5:00pm
Seminar Room, European Studies Centre, 70 Woodstock Road, Oxford OX2 6HR
John Mellor (School of Management, University of Leicester)
Adam Bennet (St Antony's College)
Adam Bennett (St Antony’s College, Oxford); David Vines (Balliol College, Oxford)
Political Economy of Financial Markets (PEFM)

The financial crisis in 2007/2008 revealed shortcomings in bank governance and also raised serious questions about the culture in banks. Both require resolution to preserve the financial system’s support for the economy and society and avoid another catastrophe. Attempts to date to reform the governance of banks have focussed on tightening regulation on bank capital, leverage, liquidity and pay. However, the reform agenda does not hinge solely on regulation but requires a deeper understanding of governance and cultural influences in a complex and diverse industry.
  A pilot study, conducted at main board level, of five carefully selected UK-based banks (Barclays, Rothschild, Schroders, Warburgs and Nationwide Building Society) has demonstrated that ownership differences lead to different models of governance and control which are reflected in different systems of governance and influence on culture. Similarly, business models incorporating a wide breadth of business activities across a broad swathe of countries give rise to governance complexities and cultural challenges. And finally, principles of conduct laid down by a bank’s founders are the foundation of a bank’s culture, but to what extent is sustaining such a legacy relevant in a contemporary context and, if there are lessons to be learnt from history, how might they be applied today?
  Four key questions for ongoing research arise from this study:

  1. What bearing does the bank’s ownership structure have on its governance and culture?
  2. What are the implications for bank governance and culture of different business models?
  3. What lessons can be drawn for governance and culture from a bank’s history and development?
  4. What are the implications for governance and culture of risk policy and management?

To help make sense of this, a conceptual framework linking elements each with an important bearing on governance is presented. It is clear that no one governance model fits all banks and that a clear definition of a bank’s purpose is key.

John Mellor is Professor of Governance in Banking and Finance at the University of Leicester and Chairman of the Foundation for Governance Research and Education, an independent charitable trust and non-grant-making body which, through its Council of experienced practitioners, partners the University on banking governance research to ensure its practical application and impact. He is director of the University’s research on governance and culture of financial institutions which explores the links with ownership, business models, risk, historical development, and regulation. Following an international corporate banking and finance career over 20 years, mainly with Citibank, he turned his focus to governance research and education by pioneering education for non-executive directors at the University of Exeter with sponsorship from NatWest Bank in 1997. Since then, prompted by concerns about the trends in banking governance and practices, which became only too evident in the financial crisis of 2007/2008, he has concentrated his attention on the financial sector, bringing into play his extensive board level connections amongst City financial institutions. His research interests are complemented by a passion for executive education, coupled with his various publications in books and professional journals.