The top lessons banking's biggest crisis in a generation taught us about governance
Summary
In this comment piece for Finance Derivative, James argues the weaknesses the banking crisis exposed still apply to every business, whatever its size or sector. They lie in accountability, leadership, culture, oversight and decision making. The crisis unfolded despite extensive governance frameworks. The safeguards were there, but they were not influencing the decisions being made. Good governance is not about how many policies a business has, but about the decisions those policies help people make.
When responsibility is spread across several teams or committees, problems can be passed between them without ever being resolved. Clear accountability, with the authority to act, makes it much less likely that they slip through the net. Measuring success by today’s revenue and growth can mean leaders miss longer-term risks, and where challenge is discouraged, silence may be taken for agreement. Complex information needs presenting in a way that lets experts be challenged, and governance needs to hold up under pressure, not only in stable periods.
Three key points
- Before the crisis the safeguards were in place; they were not shaping the decisions being made.
- Responsibility spread across teams is not accountability, and clear ownership makes it much less likely problems slip through the net.
- Businesses do not necessarily need more rules or committees, so much as people with the clarity, confidence to challenge and accountability to make governance hold.
Read the full article
The summary above draws on a longer article. Finance Derivative publishes it in full, including what the reviews into HBOS, RBS, Lehman Brothers and Northern Rock found.
Insights
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Explore your own question further
In a particular organisation, the detail can change how these points apply. James is happy to hear from anyone weighing them up for their own board, audit function or deal. This page summarises an article published elsewhere, and is not advice on any particular situation.