There is a correlation between successful companies and good
governance. However, shareholders are focused on less successful
companies' governance. Once a company is beyond a respectable
degree of success and it has reasonably traditional governance
mechanisms, there is not a problem to be solved.
The problem arises when there is a failure, as with the banking
industry in the global financial crisis. It was to do with the
importation of America's aggressive bonus culture, incentive
compensation sales systems in retail banking, PPI mis-selling and
so forth. There was either a lack of supervision by management in
terms of the degree of risk that the company ran, whether that was
an overextension of the balance sheet and its inability to fund it,
and/or the level of risk implicit in its activities. There must
have been a lack of board oversight of the overall process.
