we have seen a particular form of singular, non-plural decision-making emerge. In UK Company law, the primary responsibility of management is to shareholders. And we’ve also seen managers of those firms being remunerated in a form which aligns their interests with those of the shareholders through payment in equity or equity-like instruments.
Within banking and finance, this has led to a corporate governance structure in which those owning maybe 5% of the balance sheet – i.e. the shareholders – have the primary, some would say the exclusive, power in controlling the fortunes of the firm. There is no say from the debt-holders or depositors or workers or any sense of the wider public good which we know to be important in banking and finance. We also know that those firms are working on time horizons which in some cases are really quite short. So to think that this will necessarily lead to the best outcome, even for the longer-term value of the firm, is questionable given the governance model.
The piece I did last year was to try and understand how it was that banks ended up with the corporate governance structure I’ve described. What was it? At each stage it was a sensible reason. But it led to a corporate governance structure that looks pretty peculiar, given where we started off 150 years ago. So what I mentioned about structures and incentives – an important thing about that is who runs the firm and how they run the firm. I think corporate governance in the way I’ve defined it is super important - more important than regulation in getting us into a better place.