By Jake Martin
The public’s trust is at a premium for major banks after the global financial crisis a decade ago and the high-profile banking scandals that have since unfolded.
Questions about how to restore that trust are abound, including whether leadership at some companies even have an interest in looking inward. But it’s more than likely the key to measuring a bank’s corporate governance health is data.
Governance.Direct, a new cloud-based platform launched by Aktis, a data intelligence firm focusing on corporate governance, collects and compares over 800 data points on the world’s largest banks.
The London-based company provides benchmarking reports and analysis on data points such as board composition, size, and demographic make-up; executive remuneration; and directors’ financial expertise and work experience. Its clients include Credit Suisse, UniCredit Group and Societe Generale.
“Aktis takes the world of messy data around governance and makes that transparent,” Ben Grosman, CEO of Aktis, told Bank Innovation.
The platform uses a mix of raw data points, aggregated data points and flags to measure a bank’s corporate governance health.
Raw data points, Grosman said, are metrics like whether a board member is independent. An aggregated data point, he continued, would be something like how many members of a board, as a percentage, are independent.
A flag, meanwhile, could be a simple or complicated indicator of a larger issue.
For example, Grosman said a simple flag would be an instance in which a member of a board has been on the board for three to four years but doesn’t yet hold any shares in the company.
“I’m not saying it’s a red flag, but it’s flag of some sort,” he said. “You certainly want to investigate that.”
A more complicated flag would be an instance in which a board, as a whole, is drawn from too narrow a pool.
Grosman said Aktis would have six main criteria for determining whether a flag is warranted in this instance. Tripping off two or more of these metrics would send up a flag.
- Is the board less than 10% female?
- Does 80% or more of the board have recent banking experience?
- Do two or more directors have five or more directorships?
- Are three or more members over 70 years old?
- Do two or less members have international experience?
- Are there two or more directors who have worked with each other or who are currently working with each other in another capacity?
“All of these are indicators that potentially the board is not really drawn broadly enough,” Grosman said. “They might not, therefore, be challenging each other or challenging the executive committee. They could be a little bit too comfortable with each other.”
But progress has been made.
Boards are getting smaller and segmenting work into more specialized committees, which Grosman said is a good thing, as long as there is overlap and the committees don’t turn into silos. He said there are more disclosures concerning term limits for directors and new appointments, and that increased regulatory pressures definitely helped.
There’s a flipside, however.
“The increased time commitments needed, combined with more focus on specific skills, does narrow the pool of non-executive directors available for these positions,” he said. “Which could be counterproductive to actually achieving diversity of thought. So, it’s a careful balance that needs to be looked at.”
Bill Schlich, global banking and capital markets leader at Ernst & Young, said in a recent post on the company’s website that banks need to improve their culture in order to innovate.
“Banks with a good culture will require less capital, earn higher returns and be able to focus on innovation and improvement rather than remediation and restitution,” he wrote.
Grosman said banks shouldn’t fear governance disclosure and that it’s no secret what will drive recovery from the next financial crisis, regardless of how or when it happens.
“In the last financial crisis, the market seized up,” he said. “Well, what gets people out? Credit. What’s credit based on? Trust. What’s trust based on? Transparency.”