How to Improve Corporate Governance in Banking

Corporate governance is a collective effort. Different parties have different roles in good governance practice. Board is responsible for overall oversight of the banking activities. Senior management is responsible for internal control. Supervisors need to promote the best practices and asses the bank’s performance against the set standards. Likewise, the regulators should promote the good governance in banks all the times.

Followings are the ways of improving corporate governance in banking

Create an effective board : Having an effective board is like winning half the battle already. In order to have the effective board, it is important for the board to

·         Get the right set of experience in the board room

·         Establish a good rapport with the management

·         Establish a robust communication system between the board and the management

·         Establish a mechanism where by the boards have the access to the critical information

It is also important to define roles, responsibility and authority of each of the board members in order to maintain good board practices. It is equally important to have independent director (s) in the board room to make the board more transparent and accountable.

Establish effective control system : It is important to have an effective control system in place in order to maintain good governance. An effective control system includes;

·         Internal control procedure

·         Risk management

·         Disaster recovery

·         Independent audit committee

·         Internal and external auditors

·         Robust MIS in place

·         Separate compliance function

Good remuneration practices : It is important to have good and transparent remuneration practices in place which not only rewards performance, but also establishes relationship among pay, performance and sustainability.

Transparent disclosure : All the stakeholders should be informed about the bank’s financial position as well as any other significant non financial information. The annual report and web site should contain detailed information and the stakeholder’s should have easy access to them.

Board’s commitment : The board should provide its commitment to the good governance practices and they should always try to put their best effort in promoting the good practices. The board should discuss the good governance, allocate resources and create a good governance plan.

Other measures : In order to maintain good governance practices, the banks and financial institutions should have stronger policy on insider trading, related party disclosure, consistent dividend policy and policy on extra-ordinary transactions.