Corporate Governance in Banking

Corporate Governance in Banking

A Global Perspective

Edited by Benton E. Gup

Recent corporate scandals, together with the effects of globalization, have led to an increasing interest in corporate governance issues. Little attention has been paid, however, to international laws and recommendations dealing with corporate governance in banking from a global perspective. This impressive international set of expert contributors – academics, practitioners and regulators – remedies the lack of attention by examining the various issues and concerns of this important topic.

Chapter 2: Corporate Governance in Banks: Does the Board Structure Matter?

Benton E. Gup

Subjects: business and management, corporate governance, economics and finance, corporate governance, financial economics and regulation, money and banking, law - academic, corporate law and governance, finance and banking law


Benton E. Gup INTRODUCTION Globalization and the increased demand for better corporate governance are two major trends affecting banking; and the two trends are inexorably intertwined. The term globalization, as used here, refers to the cross-border operations and ownership of businesses in general and banks in particular. The growth of globalization raises issues about the corporate governance of banks. The issues are complicated by the fact that the definitions of banks, their permissible activities, and their stakeholders vary around the world.1 Nevertheless, everyone agrees that good corporate governance is important. But what does that mean? Does it mean that organizational structure of corporate boards is important, or that good management is important, or both, or are other issues involved? The corporate governance issue is puzzling because different organizational structures exist throughout the world; and there are examples of good and bad corporate governance in every country. DEFINITIONS OF CORPORATE GOVERNANCE The Anglo-American Model In an international survey of corporate governance, Shleifer and Vishny (1997) say that corporate governance ‘deals with the ways in which supplier of finance to corporations assure themselves of getting a return on their investment’. They argue that corporate governance is primarily concerned with principal agency problems between ownership and control. Stated otherwise, it deals with problems that arise because of the separation between shareholders and management. This Anglo-American or ‘shareholder model’ of corporate governance is accepted in the United States, England and some other countries. 18 Corporate governance in banks 19 OECD de...

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