The Essence of Corporate Governance

Transparency and reporting are at the essence of corporate governance. At Wells Fargo, the information on staff being terminated for opening unwanted client bank accounts was withheld from the Board and other stakeholders. Even after information on unlawful sale practice emerged through the press, the Board failed to appreciate the seriousness of the matter and was led to believe that the measures taken had the problem under control. The Board is not free from responsibility on this case as its members should have been a lot more inquisitive. However, it did correct its course when the Board commissioned and published the independent report on the incident produced by the Oversight Committee.

In other cases a lack of transparency on the degree of implementation of the operating model based on digital technology or the lack of explicit description of the ICT strategy and governance in the Annual Reports, are a symptom of poor governance. With the importance that digital is taking in business today, it should be standard practice to include in Annual Reports the status of the ICT plan and its implementation.

Complementing the prior points, success in the knowledge economy requires companies to manage their intellectual capital well and innovate deeply in their business model. Poor governance often results in the organisation losing the sophisticated human capital that it has built over many years, while the failure to implement corporate processes and information standards (i.e., structural intellectual capital) often leads to barriers to the implementation of new business models.

Topic for reflection: (1) Identify corporate governance vulnerabilities in your bank and propose ways to address them; (2) Read the Wells Fargo case in chapter 3 of the book and explain why, or why not, you think your bank could experience a similar incident. In particular think around the pressures to perform; the balance of power between the strategic business units and the compliance function; the awareness of the Board on what is happening in operations and client contact teams.