Corporate Governance and Accountability of Financial Institutions: The Power and Illusion of Quality Corporate Disclosure (Palgrave Studies in Accounting and Finance Practice)

The presence of sound corporate governance in a financial institution is important in maintaining the confidence of both the market and the public. The power that corporate governance holds over the success of some of the largest financial institutions in the world is not to be downplayed. This book methodically assesses the quality of corporate governance and mechanisms of accountability disclosures to various stakeholders. It is further intended to provide fresh insights into some specific corporate governance recommendations to help improve good governance in financial institutions, particularly in the United Kingdom and the EU but will also be applicable to other major economies. It explores what, when and how corporate governance has changed the financial institution functions and corporate executive behaviour by critically reviewing the pre- and post-financial crisis theoretical and empirical literature. Increasingly driven by the nature of complications, complexities and opacity in the operations of financial systems, corporate governance reporting plays an important role in the financial sector. It will provide insights into corporate governance disclosures over a long-term basis. This book should be a valuable asset to support the research of practitioners, students and all academics due to its stimulating and reflective insights into this fascinating topic. Jonas Abraham Akuffo is trained finance and business management expert, is currently working in strategic finance and pricing in the healthcare industry. He holds a Joint Doctor of Business Administration in Accounting & Finance, an MBA in Finance, a master's in Business Economics, Finance & Banking, a BA in Economics and has completed his studies in Ghana, England and France. He is also a Fellow of Chartered Management Institute (FCMI). His current research interests include accountability, corporate governance, healthcare financing, strategic corporate finance and management control systems Series Editors’ Foreword Preface Acknowledgements Contents Abbreviations List of Figures List of Tables 1 Introduction References 2 Corporate Governance Development: A Reaction or Deliberate Policy Thought? 2.1 Introduction 2.2 Defining Financial Institution Corporate Governance? 2.3 The Importance of Sound Financial Institution Corporate Governance 2.4 United Kingdom Corporate Governance Development 2.5 Corporate Governance Development in the European Union 2.6 Development in the United States 2.7 Conclusion References 3 Rethinking of Corporate Governance in Financial Institutions: Do we Need a New Theory? 3.1 Introduction 3.2 Corporate Governance Framework in Financial Institutions Research 3.3 Is There a Difference Between Financial Institutions and Generic Concept of Ordinary Firm? 3.4 Research on Financial Intermediaries Internal Corporate Governance and Mechanisms of Accountability 3.4.1 The Role of Bank Boards of Directors in Corporate Governance 3.4.1.1 Board Size, Expertise and Independence 3.4.1.2 Board Meeting Frequency 3.4.1.3 Role of Audit Committee 3.4.2 Senior Management Compensation and Corporate Governance 3.5 Research on Financial Intermediaries External Corporate Governance and Mechanisms of Accountability 3.5.1 Role of Regulation, Supervision and Law and Corporate Governance 3.5.2 Institutional Ownership and Corporate Governance 3.5.3 Market for Corporate Control (Anti-Takeover) and Corporate Governance 3.6 The Academic Data on the Link Between Corporate Governance Performance 3.7 Conclusion References 4 Walking a Fine Line: Governance, Accountability Mechanisms and Disclosure Literature 4.1 Introduction 4.2 How Is Corporate Governance Defined? 4.3 Exploring the Association Between Corporate Governance and Concept of Accountability 4.3.1 Overview of Concept and Definition 4.3.2 Mechanisms of Accountability in Corporate Governance in Accounting Studies 4.4 The Nature of Discosure Studies in Corporate Governance 4.4.1 Importance and Nature of Research Evidence 4.4.2 Empirical Surveys on Measuring Quality, Contents and Levels of Details Accounting Disclosure Reporting 4.4.2.1 Overview of the Method of Content Analysis in Accounting Studies 4.4.2.2 Studies Measuring Quality and Reporting Details in Accounting Disclosures 4.5 Gaps in Prior Research on Corporate Governance and Accountability in Accounting and Finance 4.5.1 Measurement of Disclosure Quality in Corporate Governance Studies 4.5.2 Causation and Endogeneity Problems 4.5.3 Lack of Studies with Longitudinal Focus 4.5.4 Lack of In-Depth Intra-sector Studies 4.5.5 Lack of Focus on Consistent Use of Governance Categories and Findings 4.5.6 Lack of Consistent and Conclusive Overall Findings 4.6 Conclusion References 5 To Blame? The Less Talked About Cause of the 2007–2009 Financial Crisis 5.1 Introduction 5.2 The Cost/Impact of the Global Financial Crisis 5.3 The 2007/08 Banking Crisis and Lapses in Accountability of Corporate Governance Mechanisms 5.3.1 Inadequacy of Risk Management in Addressing Corporate Governance 5.3.2 Compensation and Misalignment of Enticement Arrangements in Financial Institutions 5.3.3 Lapses in Board Behaviours and Competence 5.3.4 Lack of Active Shareholder Engagement in Scrutinising Board of Directors 5.3.5 The Ineffectiveness of Oversight Governance Structure 5.3.6 Gaps in Disclosure and Accounting Standards 5.3.7 Misleading Information Provided by Rating Agencies 5.4 Conclusion References 6 Why? Examining and Understanding the UK Financial System and Its Regulatory Framework for Corporate Governance 6.1 Introduction 6.2 Why the United Kingdom Is a Major International Financial Centre 6.3 The Structure of Banking (Deposit-Taking) Institutions 6.3.1 General Functions of the Financial Services Sector 6.3.2 The Size and Number of Banks in the United Kingdom 6.3.3 UK Bank Lending, Funding and Other Assets 6.3.4 UK Largest Banks and Consolidation After Financial Crisis in 2007/08 6.4 The Structure of the Financial Market in the United Kingdom 6.4.1 The Insurance Market in the United Kingdom 6.4.2 The Fund Management Industry in the United Kingdom 6.4.3 The Structure of the Payment and Settlement System in the United Kingdom 6.4.4 Financial Sector Contribution to UK Economy 6.5 Financial Sector Supervision and Bank Regulation in the United Kingdom 6.5.1 The UK Regulatory Framework for Corporate Governance 6.5.1.1 The Overview of Structure and Sources of UK Corporate Governance Regimes 6.5.1.2 The United Kingdom Corporate Governance Code 6.5.2 The UK Financial Regulatory Framework Applicable to Banks 6.5.2.1 The Financial Services and Markets Act: The Statutory Regime 6.5.2.2 The Structure of the Financial Service Authority Corporate Governance 6.5.2.3 The Interaction of Company Law and Corporate Governance Regime 6.5.2.4 The Regulatory Rule Pertinent to Banks Corporate Governance 6.5.3 UK Prudential Regulation and Mechanisms 6.6 European Banking Supervisory and Corporate Governance Framework 6.7 US Financial Industry Corporate Governance Supervisory Framework 6.8 Conclusion References 7 A Review of Corporate Governance and Accountability Mechanisms in UK Financial Institutions—What Is Working and What Is Not? 7.1 Introduction 7.2 Approach to Evaluating Corporate Governance Document Contents 7.3 Presentation of Overall Disclosure Findings and Analysis 7.3.1 Presentation of Main Theme Findings and Analysis 7.3.2 Findings of Overall Analysis of Quality Level Scores 7.3.3 Finding of Overall Long-Term Trend and Evaluation 7.4 Conclusion References 8 Power! Qualitative Corporate Governance Disclosures in UK Financial Institutions 8.1 Introduction 8.2 Findings Per Dimension of Main Corporate Governance Themes 8.2.1 Disclosure of Corporate Governance in Context Findings 8.2.1.1 Statement of Compliance for Codes and Standards Disclosure 8.2.1.2 Statement of Non-compliance for Codes and Standards Disclosure 8.2.2 Disclosure of Board Leadership Findings 8.2.2.1 The Role of Bank Board of Directors Disclosure 8.2.2.2 The Role of Bank Board Chairman Disclosure 8.2.3 Disclosure of Board Effectiveness Findings 8.2.3.1 Board Size Narrative Disclosures 8.2.3.2 Board Balance/Composition Disclosures 8.2.3.3 Board Meetings Disclosure 8.2.3.4 Non-executive Directors Independent Scrutiny Disclosure 8.2.3.5 Board Evaluation Disclosures 8.2.3.6 Board Committees’ Workings 8.2.3.7 Board Refreshment 8.2.4 Disclosure of Accountability Findings 8.2.4.1 Risk Management and Internal Control Disclosures Information 8.2.4.2 Internal Audit Disclosure 8.2.4.3 External Audit Disclosures 8.2.4.4 Audit Committee Scrutiny Disclosures 8.2.5 Disclosure of Performance/Results Findings 8.2.5.1 Key Performance Indicators Disclosures Information 8.2.5.2 Code of Conduct or Ethics Disclosures Information 8.2.5.3 Whistleblowing Disclosures Information 8.2.5.4 Breaches and Penalties Disclosures Information 8.3 Conclusion References 9 The Inside Scoop—What Stakeholders’ Think of Corporate Governance in Financial Institutions 9.1 Introduction 9.2 The Notion of Financial Institution Stakeholders and Shareholders 9.3 The Function of Financial Institution Stakeholders in Corporate Governance and Disclosure Accountability 9.4 Corporate Governance Issues in Other Financial Institutions 9.5 The Importance of Other Financial Institutions in the Financial Market 9.6 Corporate Governance and Disclosures as it Applies to Non-banking Financial Institutions 9.6.1 Legal Frameworks and Regulation of NBFIs 9.6.2 Accountability Governance and Supervision of NBFIs 9.7 Governance Policy Issues Affecting Non-banking Financial Institutions 9.8 Conclusion References 10 A New Dawn: Accountable, Transparent Governance...What the Practitioners Want? 10.1 Introduction 10.2 Qualitative Disclosures: Drawing Managerial Implications for Key Stakeholders 10.2.1 Is the Governance Reporting Structure Still Fit for Boards and Management in the United Kingdom? 10.2.2 Providing and Improving Information Transparency to Shareholders, Supervisory Regulators and the Government 10.3 Where Do Corporate Governance Go from Here; Agenda for Further Research 10.3.1 Broadening the Scope and Use of Annual Reports for Qualitative Corporate Governance 10.3.2 Broader Stakeholder Governance Reform—Impossible or Unwillingness for Legal Changes? 10.3.3 Disclosure of Code of Best Practice: Enforcement Still Remains Insufficient 10.3.4 Focus Should Move from Physical Structures to Behavioural in Governance Decision-Making 10.3.5 Broadening the Scope of Disclosure Research Datasets 10.3.6 Call for Further Studies on Financial Supervision Effectiveness: Investigate the Investigators? 10.4 Conclusion References 11 Conclusion References Appendices Appendix 1: Corporate Governance Measuring Criteria of Scoring Method Used Appendix 2—Constructed Corporate Governance Checklist Index Used for the Assessment in Chapters 7 and 8 Appendix 3—Table 6.4 UK Largest Banks and Transaction Networks Appendix 4—Table 6.5a: Global Financial Markets: UK Market Share (April 2013) Appendix 5—Table 6.5b Appendix 6—Categories of Financial Sector Contribution to the UK Economy Appendix 7 References Index