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Corporate Governance in Financial Services - Essay Example

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Corporate Governance in Financial Services

This paper presents agency and other related issues which explain banks’ governance failings in the UK. It further looks into stakeholders’ responsibility as far as the identified failings are concerned. In conclusion, the paper highlights several recommendations that could essentially enhance corporate governance in the UK’s banking sector. Bank Governance Failings in the UK The effectiveness and efficiency of corporate governance influences almost all operations undertaken by a business enterprise. Just like any other business enterprise, banks in the UK are profit-driven. This means that the set organizational goals and objectives are designed on a profit-motive platform. All the stakeholders involved relate and interact in a way that fosters business continuity. Whilst this process may be marred with operational and functional challenges, supervision and control relative to stewardship, fiduciary duties, and accountability define the corporate governance pursuit (Gordon & Roe, 2004, p.168). Board of Directors The board of directors stands at the top of organizational hierarchy. The role and responsibility played by the board acts in the best interest of all stakeholders. This means that the board is the highest body that represents the interests of all the stakeholders in an organization. In the banking sector, board of directors plays more or less the same role and responsibility. Specifically, the board supervises, monitors, and controls corporate officers, and also handles major decisions that relate to organizational operations (Ryan & Wiggins, 2004, p.511). In the light of corporate governance, board effectiveness is critical both in the short run and long run. The subject of board effectiveness in corporate governance is provided for by the Combined Code on Corporate governance (Edmonds, 2011). Bank failure and subsequent financial crisis in the UK can be explained through boards’ failure to be effective and efficient. Monitoring of executives in the banking sector was poor in the period preceding banking crisis in the UK. Many boards in the sector failed to discharge their duties and responsibilities accordingly. The implication was that banks were caught unaware of the underlying risks of poor board management. The board of directors sets strategic aims, provides entrepreneurial leadership, ensure understanding and realization of organizational obligations to stakeholders, and reviews/manages organizational performance (Adams, 2003, p.723). These aspects of the board’s role were poorly discharged and managed, resulting in failed corporate governance practices. UK banks were adversely affected by this failure due to the fact that they failed to realize the underlying risks of poorly managed and governed corporates. The relationship and interaction between Chief Executive Officers, non-executive directors, and board of directors further influenced governance failings in UK banks. Corporate structuring had failed to streamline and clearly distinguish the governance role of each of the said parties. Moreover, the integral role of chairmanship in banking further complicated governance practices. In the UK banking context, there existed conflict of interest between board chairman and the CEO. In his review, David Walker (2009) reported that majority of firms were yet to separate chairman ...Show more


Topic: Corporate Governance in Financial Services Institution Affiliation: Date: Introduction Corporate governance is undoubtedly fundamental in the organizational setting. Practices of corporate governance influence and inform the interactions and relations between various stakeholders within and across an organization or industry…
Author : nicklaus33
Corporate Governance in Financial Services essay example
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