Corporate Governance in Retail Banking

Bankers are aware that we're shifting into a more digitalised world, but are not always aware how that is impacting bank governance norms and standards. Old models are getting outdated as modern retail banks face profound governance challenges shaped by the shift from an industrial to a knowledge economy. This transformation has redefined assets, competitive dynamics, stakeholder expectations, and the very purpose of governance itself. It's a brave new world.

Intangible Dominance and New Governance Needs

As banks moved from managing mainly tangible assets to overseeing predominantly intangible ones – such as data, intellectual capital, and brand trust – traditional governance frameworks became outdated. Go back to 1975, and you'll find that 83% of S&P 500 assets were tangible; by 2021, 90% were intangible. This shift demands governance systems that protect and cultivate human, structural, and relational capital. Yet many boards still focus on old agency concerns such as monitoring management on behalf of shareholders while neglecting how to build cultures that safeguard these vital, shareable assets.

Balancing Conflicting Stakeholder Interests

Navigating the expansion of stakeholder focus is a major new issue. Previously, governance was simpler: serve shareholders. Now, banks must satisfy a complex web of stakeholders including regulators, communities, customers, and employees, groups that often have conflicting priorities. Sustainability heightens this challenge. Governance today must balance economic goals with social and environmental responsibilities. Boards need to move beyond trying to plug information gaps between management and stakeholders. Instead, fostering a culture of "performance with integrity" offers the best long-term protection for all parties.

Cultural Weakness and Hidden Costs

Case studies at Lafferty Group reveal how weak cultures amplify governance failures. At Wells Fargo, a toxic sales-driven culture led employees to open fake accounts under pressure. Similarly, HSBC Mexico and Danske Bank Estonia became entangled in money laundering scandals due to poor ethical climates. These incidents damaged customers, employees, shareholders, and brand trust. They underscore the critical governance relationship often overlooked: between the CEO and the broader employee base. Boards that fail to ensure CEOs instil ethical, process-oriented cultures risk scandals that erode both intellectual and financial capital. In some cases, such as Silicon Valley Bank, governance failures cost the bank its entire business.

Digitalisation and Cybersecurity Pressures

Digital transformation adds another layer of governance complexity. Big data, cloud computing, and Fintech disruptors create not just opportunities but heightened cybersecurity and compliance risks. Boards must ensure robust controls that secure data and uphold customer trust while enabling innovation. This means integrating digital strategy, ICT governance, and compliance into core reporting – and not treating them as side issues.

It's now critical to have board members with deep understanding of current technologies, shortcomings of those technologies, and the relationship between technology and bank culture.

The Risks of International Operations

Global operations also challenge governance. Banks face corruption risks, especially bribery and money laundering, and more so when risks are heightened by distance from headquarters and divergent societal norms. Weak "transaction governance capacity" in some regions, where informal practices fill gaps left by inadequate formal institutions, makes rigorous oversight even harder. Boards must understand local cultures, define power sharing between corporate centres and subsidiaries, and uphold uncompromising compliance standards across markets.

Sustainability and Green Finance Pressures

Modern banks are also under pressure to drive society toward greener economies. The UN Principles for Responsible Banking (PRBs) aim to align lending with climate goals, pushing banks to assess and limit financing of high-carbon projects. But these principles are voluntary, and implementation is complex. Banks must evaluate emissions across value chains and monitor clients' mitigation activities, which requires new tools and processes. Adopting PRBs often strains revenues by restricting lending to traditional sectors and raises operational costs, creating tension with shareholder expectations.

Integrating Culture, Strategy, and Innovation

Ultimately, corporate governance in modern retail banking must evolve from merely overseeing management on behalf of shareholders to becoming an integrator. It must tie together corporate culture, stakeholder management, sustainability, and innovative business models. The Board-CEO and CEO-employee relationships are pivotal in this shift. Only by building cultures of integrity, managing intellectual capital wisely, balancing diverse stakeholder interests, and embracing digital and sustainability challenges can banks navigate this new landscape.

Reflection for Banks

Banks must honestly assess their cultures, stakeholder approaches, and governance of intangible assets. As global, digital, and sustainability pressures grow, so too does the need for boards to drive ethical, resilient, future-ready governance models that move beyond old concerns, building value that lasts.

Candidates report back to us that the board governance training is especially impactful, as it's easy to lose sight of big transitions while working on the business frontlines. Our board governance training is written and delivered by Professor Paul Griffiths who teaches at RBI and at the Master's Degree programme at EM Normandie in Oxford. He is the author of Corporate Governance in the Knowledge Economy: Lessons from Case Studies in the Finance Sector by Palgrave McMillan.

Corporate Governance is the opening module in the Certified International Retail Banker programme. The next programme begins on 17 September.
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