Group of Thirty report
The role of the board of directors
FI board members must continue to work harder than directors on the boards of other types of companies.
The financial crisis revealed that management at certain FIs, with the knowledge and approval of their boards, took decisions and actions that led to terrible outcomes for employees, customers, shareholders, and the wider economy.
Boards of directors play the pivotal role in bank governance through their control of the two factors that ultimately determine the success of the financial institution: the choice of strategy and assurance that the necessary talent is in place, starting with the CEO, to execute the strategy.
The G30 report notes that well-functioning boards perform the following 10 essential tasks:
- Fashion an effective leadership structure that allows the board to work collaboratively as a team.
- Recruit the right members, those who have a balance of expertise, skills, experience and perspectives and who exhibit irreproachable independence of thought and action.
- Build a nuanced and broad understanding of all matters concerning the strategy, risk appetite and conduct of the firm, as well as an understanding of the risks it faces and its resiliency.
- Appoint the CEO and gauge top talent in the firm, assuring that the CEO and top team possess the skills, values, attitudes and energy essential to success.
- Take a long-term view on strategy and performance, focusing on sustainable success.
- Respect the distinction between the board's responsibilities for direction-setting, oversight and control, and management's responsibilities to run the business.
- Reach agreement with management on a strategy and champion management once decisions have been made.
- Challenge management, vigorously and thoughtfully discussing all strategic proposals, key risk policies and major operational issues.
- Put rigorous and robust processes in place to monitor organizational compliance with strategy and risk appetite and with all applicable laws and regulations.
- Assess the board's own effectiveness regularly, occasionally with the assistance of external advisors, and share this assessment with the lead supervisor.
Above all else, boards must ensure that the FI is never exposed to potentially fatal risks.
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