Group items tagged

that directors permitted an unsustainable growth strategy designed to exploit the real estate market but failed to protect the bank from the substantial inherent risk associated with that growth, by overconcentrations in acquisition, development and construction loans, which in at least one case was over 80% of the bank’s entire loan portfolio, or lack of supervision of senior management and undue reliance on them in loan originations without assurances of core competencies in areas of credit administration and risk underwriting and without adequate policies and procedures to enforce prudent lending, informed decisions and adequate monitoring. that directors neglected to heed warnings from bank regulators, particularly those contained in reports of examinations and exit interviews, about deteriorating asset quality and capital, or failed to make corrective changes in accordance with the directions of regulatory authorities. that directors permitted the making of “insider” loans without adequate analysis or documentation. that directors declared dividends payable to the bank’s holding company at a time when asset quality was declining significantly and the required capital ratios were being reduced.

gross negligence would encompass a complete disregard of the institution’s statutory mandate and permitting it to engage in conduct which violates the law.

recurring themes

The lesson for directors or prospective directors of existing banks is that these FDIC-led challenges of past behavior help to delineate the boundaries of proper director fiduciary conduct expectations for banks. 

Directors have a broad responsibility for oversight of a bank and therefore service as a member of the board should not be seen as a “hobby” or a prestigious pseudo-club membership; significant amounts of time need to be dedicated for a director to adequately perform in accordance with FDIC expectations. Directors must not merely rely on the actions or recommendations of senior management but are charged with holding management’s feet to the fire in addressing strategic challenges and specific operational problems and proposing solutions. Directors must be exacting in their appraisal of the competency of senior management and must be in a position to make changes when incompetency is apparent, sooner rather than later. Directors must demonstrate that they are acting independently, free from any allegiance to management, and cannot allow themselves to be managed by a dominant CEO or controlling shareholder. Directors may not turn a blind eye to unsafe or unsound practices or to potential violations of law, particularly in those areas identified by bank examiners as warranting further attention or action. Directors must be very sensitive to the appearance of a conflict of interest and must leave all self-interest at the door.

FDIC officially has authorized lawsuits against 266 individuals with total damage claims totaling about $6.8 billion. 

“They say it in private but would never say it in public – board directors are turning a blind eye [in the UK],” he says. “We have a culture where we don’t ask questions.”

“There is no respect given to governance in some countries with which we do business. And governments will do anything to ‘get the deal’.

deliberate misuse of governance:

huge amount of bribery and corruption”

Governance has become “what you shouldn’t do – and adds no value”,

has become so “defensive” it is now “an irrelevant function”,

could not identify the comparative advantage of the company on whose board they sat.

It is the mentoring side of the boardroom – support, stewardship and leadership – that can work well, but when it comes to this role, the UK is “negligent”.

the selection criteria for non-executives is unclear,

the role of the senior independent director can be “opaque” or “irrelevant”.

part of the problem in the UK is the system of appointments, and the “clubbiness” surrounding boards

96 per cent of searches in the US are there for the headhunter to look good and to make an appointment

“American managers are becoming far more vocal about their boards out of sheer frustration – and a sense that unless you speak up, nothing is going to change,”

Australian boardrooms

creating culture at management level and have also tried to restrict the number of positions non-executives can hold

he answer lies not in a greater focus on strategy, but on engagement.

We have treated alignment and engagement as separate, instead of together.”

themes

What should be the time-horizon of investor engagement? Do activist investors have too narrow a focus on short-term gains? How is engagement most effective? Is there a particular governance or ownership structure that promotes better engagement? How can mainstream large mutual funds and asset managers increase their level of engagement with companies? Are there specific incentives (or lack thereof) that prevent institutional investors from becoming more actively involved with their portfolio companies?

Mary Schapiro

Pershing Square

highlighted the positive impact of say-on-pay votes, and better disclosure of director qualifications.

SEC's commitment to address proxy voting mechanics and the rules around beneficial ownership disclosure.

first panel

Reuters Editor-at-Large Chrystia Freeland

agency's efforts to improve engagement between shareholders and their investee companies

Bill Ackman,

active ownership, and opposed the notion that activists have a short time horizon

engaging with management and the board, he argued.

Martin Lipton

Wachtell

Lipton, Rosen and Katz

acknowledged that some activist investors with long-term significant positions may benefit investee companies.

obsession for shareholder value in terms of quarterly results

diffused ownership of U.S. corporations

constitute "the greatest threat to the economies of the western world." 

Mats Anderson, CEO of the Fourth Swedish National Pension Fund

Runa Urheim

Scandinavian perspective

Norges Bank

Swedish system of boards fully comprised of independent directors and shareholder-led nomination committees

Norges Bank

ave a significant shareholder.

Nadia Calvino

Internal Markets and Services of the European Commission

view corporate governance as a key component of a well-functioning economy

new requirements should be made with great caution, since it may have substantial impact on numerous parties. 

second panel, Julian Franks

perspective of labor funds

"Unfulfilled Expectations? The Returns to International Shareholder Activism.”

paper

compared shareholder activism in Europe, North America, and Asia

abnormal returns when the activism results in specific measurable outcomes, such as changes on the board, payout policies, restructurings, and takeovers.

Brandon Rees

London Business School

AFL-CIO’s Office of Investment,

endorse active ownership but maintain a buy-and-hold investment perspective

easier access to companies' boards through proxy access and other means of engagement is in the best interests of all minority shareholders.

final panel

role of institutional investors and the barriers to engagement with corporations

law at the University of Pennsylvania

law professor at the University of Munich

Calvino's view that regulators should tread carefully in order to avoid any unintended consequences of regulatory action, and opposed the notion of mandatory engagement.

Horst Eidenmulle

Edward Rock

free rider problem among institutional investors, who are competing on cost, price, and performance relative to peers.

little incentive for any individual player to take on the costs of engagement with uncertain benefits as in comparison to its peers.

Luigi Zingales of the University of Chicago

institutions' lack of incentives to engage

the costs of engagement may be significant for individual institutions, there may be opportunities to overcome the collective action problem by permitting greater collaboration among investors and easier access to the board by minority holders,

voto di lista system