Klaus J. Hopt is former director at the Max Planck Institute for Comparative and International Private Law, Hamburg, Germany. This post is based on his recent paper, forthcoming in the European Business Organization Law Review.
Corporate governance was first developed as a concept and field of research for private listed corporations. The idea of developing corporate governance standards spread quickly to other sectors, in particular to banks, insurance companies and other financial institutions. Yet after the financial crisis it turned out that not only banks are special, but so is the corporate governance of banks and other financial institutions as compared with the general corporate governance of non-banks. The corporate governance of banks and other financial institutions has gained much attention after the financial crisis. From 270 economic and legal submissions from 2012 to 2016 in the ECGI Working Paper Series of the European Corporate Governance Institute (ECGI), roughly half address corporate governance questions, and more than a quarter of these look at the regulation and corporate governance of banks (in the broad sense). Empirical evidence confirms this. Banks practicing good corporate governance in the traditional, shareholder-oriented style fared less well than banks having less shareholder-prone boards and less shareholder influence. Apparently bank boards charted a course more aligned with the preferences of shareholders, who—if sufficiently diversified in their holdings—embrace risk more readily than, for instance, a bank’s creditors. Banks that were controlled by shareholders saw higher profits before the crisis as compared to banks that were controlled by directors. Enterprises in which institutional investors held stocks correspondingly fared worse. Banks with independent boards were run more poorly. At least for banks, director independence can carry negative effects whereas expertise and experience are of much greater value, at least when obvious conflicts of interest are avoided.
