Over the past decade, hardly a single bank has escaped significant risk or compliance issues. Visiting Professor, Emmanuel Rondeau looks at the significance of recent shareholder action at Credit Suisse.
In almost every country around the globe, all kinds of mismanagement and misconduct at banks have led to reputation issues and calamitous headlines – followed by massive provisioning for risk losses or regulatory fines.
Even the ‘best in class’ have been impacted. The stories of Wells Fargo, Danske Bank, Raiffeisen Switzerland or the Australian banks– to name a few – have become classic case studies for executive sessions in the financial industry.
Making bankers personally accountable
In the meantime, regulators have been actively trying to change a fundamental aspect of the banking world – bankers’ personal accountability.
Through the Senior Manager & Certification Regime in the UK, or the fit and proper process set up by the European Banking Authority, as a couple examples, the selection process, remuneration policy and sanctions regime for banking executives has been toughened.
Even though this is still work in progress in some jurisdictions, it’s clear there have been concrete improvements in this field.
Dismissals and claw-backs have been imposed on key executives in failing financial institutions, including the name and shame publicity that now goes with it.
While accountability has long been restricted to mid-management levels, it has progressively been reaching the top of the ladder. A number of CEOs and their executive committee colleagues have been sacked for their mistakes, misconduct or for mismanaging risk and compliance.
Shareholder action
For too long, this accountability stopped at the door of the boardroom.
The collective and confidential nature of boardroom debates and decisions largely prevented individual responsibility being recognised outside of the chairman’s position.
When major fiascos happened, a mixture of complacency and good manners protected board members. Non-executives were replaced in some cases, but usually discreetly, so as not to harm the reputation and image of those who had basically failed in their surveillance role.
What the Credit Suisse story tells us is that this period is over.
Andreas Gottschling, a former McKinsey consultant, had chaired the board risk committee for three years at Credit Suisse. On 30 April 2021, he had to step down after an influential US shareholder adviser opposed the renewal of his mandate.
“In order to regain shareholder trust in light of the substantial financial and reputational damage that the company is facing as a result of recent events, shareholders would be better served by a change in leadership of the risk committee,” wrote the adviser.
One of Switzerland's top shareholders associations, Actares, also opposed Gottschling's re-election to the risk committee.
Boardroom accountability
On the board risk committee for only three years, Gottschling could not be blamed for the long succession of issues, including:
- the FINMA enforcement in respect of anti-money laundering (AML) / combatting the financing of terrorism (CFT) issues,
- the spying scandal under the former CEO, Tidjane Thiam, and
- the massive losses due to exposure to Greenshill and Archegos.
But someone had to be accountable and it was time to make an individual responsible for the oversight of the bank’s risk culture. All the more when that person gets paid $800,000 a year for that job.
The lesson is that even non-executive board members can be singled out for their lack of performance and abruptly sacked. Everyone in the boardroom will remember that lesson. Credit Suisse shareholders have made the regulators dreams come true.
Emmanuel Rondeau is a Visiting Professor at LIBF and chairs the board risk committee of La Banque Postale in France. He’s held senior executive and non-executive roles in many leading banks and is a regular trainer and keynote speaker for banks boards, specialising in ethics, risk and governance.
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