Corporate Governance in the Banking Sector
During a period of considerable internal upheaval and external pressure, a major European bank turned to FTI Consulting to improve its corporate governance mechanisms – with award-winning results.
At any point in the business cycle, all companies, and financial institutions in particular, are most likely to maximise their potential if they have effective, fully embedded corporate governance structures and processes that permeate from the top to the bottom of the organisation.
This is not just a survival strategy. Sound corporate governance is the foundation of any well-controlled business, helping to improve corporate resilience and protect the bottom line in both downturn and boom periods alike.
So when our client, a major European bank, faced a perfect storm of a national economy in crisis, significant internal upheaval, and wide-ranging regulatory changes, its new Board quickly turned to FTI Consulting to work with the bank to meet its challenges.
FTI’s engagement began by assisting the bank with its deteriorating balance sheet, which was under immense pressure due to defaulting borrowers and the lack of legislative framework to enforce the loans. Our corporate finance team carried out a loan-by-loan assessment of the portfolio, the establishing processes and organisational structures to stabilise the bank and maximise loan recovery.
Concurrently, our Governance, Risk and Regulation team worked with the Board and Executive team to review their existing governance arrangements and adjust them to bring them in line with the recently mandated regulatory requirements and good practice from various EU jurisdictions. The engagement included: conducting an independent and comprehensive review of existing corporate governance arrangements; evaluating the composition and operational effectiveness of the Board and its Committees; evaluating the roles and responsibilities of the Board members and the degree of oversight and challenge being provided to the executives; reviewing the Board’s and the Board Committees’ terms of reference; reviewing issue escalation processes; and evaluating the quality of management information.
Throughout the project FTI worked in close partnership and shared their insights with us. As a result we have established robust internal processes and have embedded corporate governance arrangement that reflect regulatory standards and industry best practice. The team’s pragmatic and practical recommendations have helped improved our bank and its controls significantly. Thank you for all your work.
Chair, European Bank
Our professionals ran a series of workshops and one-to-one education sessions with Board members, to assist them in understanding the role of Boards, Board Committees and Executives. Discussions covered issues and ideas emerging from relevant reading materials provided by FTI Consulting.
This work also encompassed a review of the risk management framework, including an evaluation of the Three Lines of Defence model, which provides a simple yet effective way of clarifying roles and duties within an organisation and explains how risk management responsibilities should be divided. The robust use of this model ensures the Board understands the risks to the bank and that appropriate monitoring and oversight controls are in place.
FTI Consulting also undertook a thorough competency assessment of the bank’s control position holders.
The client continues to seek our support in the continuous development of its corporate governance practices as it strives to keep pace with the changing demands of local and European Corporate Governance regulations, as well as industry best practice.
Upon completion of our comprehensive review, the team identified a number of gaps in the governance practices which would be rectified. These recommendations were prioritised and structured into a delivery plan, which allowed the client to address its key priorities in the most cost and resource effective way.
Ultimately, the client was so pleased with our review that it retained our team to support the design and implementation of our recommendations, and the drafting of key documents pertaining to its corporate governance.
The bank’s careful management was well-rewarded. By actively managing its non-performing loan portfolio, eschewing risk and putting in place a comprehensive governance framework with full transparency, it was able to withstand the economic storm that hit much of the country. Moreover, by distancing itself from its peers by pursuing its business in a conservative, yet focussed, fashion, it attracted new shareholders and business and lay robust foundations for future expansion.
Outcome: As a result of the bank’s clear focus on good governance, it not only emerged safely from the recession, but it was able to manage it s affairs without appealing to bailout funds or other forms of state support, as it s competitors did. That is an achievement all of the bank’s stakeholders, including it s employees, continue to be proud of.
The bank’s success has not gone unnoticed, and it has been recognised as an ‘inspirational leader’ of the country’s financial sector. In winning one award, the judges commented that, “the key to its enduring success remains good corporate governance with the active involvement of all stakeholders and full compliance with global standards.”