Despite bankers’ repeated complaints about excessive regulation, many of them are actually doing more than is required of them in corporate governance.
A task force assembled by the California Bankers Association asked 91 publicly traded and privately held banks with assets of $100 million to about $5 billion if they had adopted certain corporate governance practices that either are or are not mandated by the Sarbanes-Oxley Act of 2002.
A majority of the survey respondents said they had adopted some of the best practices recommended by consultants, said Leland Chan, the trade group’s general counsel and one of the survey report’s authors.
“We were very pleasantly surprised to see that these banks really took good governance practices to heart,” Mr. Chan said. “Banks are in a very competitive business, and they strive to take whatever advantage they can. They recognize the importance of doing these things.”
Though the sample size is small, banking consultants said surveys in other parts of the country would probably yield similar results.
“A lot of banks are doing things that aren’t required,” said Jeffrey C. Gerrish, the chairman of Gerrish & McCreary Consultants LLC in Memphis. Sound corporate governance “helps them avoid reputational risk.”
In the California survey, 67% of the respondents said that their boards performed reference and background checks of prospective directors; 81.4% said the board conducted periodic assessments of the chief executive officer; and 81.4% said they separated the CEO and chairman positions.
Mr. Chan said peer surveys can be a good way to get banks to adopt best practices, particularly if the survey participants compete with one another.
One aim of the survey was to give California Bankers Association members a better understanding of what others are doing and what they could do to sharpen their own corporate governance practices, said Allan Severson, the task force’s chairman and a board director at California Bank and Trust in San Diego, a Zions Bancorp. subsidiary
The survey also serves as a road map for the task force, which was created in 2003 to sift through regulations and other corporate governance guidance.
“Some of the regulations and recommendations are redundant, some are overkill, and some have value,” Mr. Severson said. “We wanted to take those things we think have value, and use those to improve the overall health of our member banks.”
The report, whose other authors were four outside attorneys, highlighted areas where improvements could be made. Only 34% of the banks polled said their boards did periodic assessments of themselves and individual board members, but the survey’s authors included a note in the results that board self-assessments and peer reviews can lead to better governance and help identify areas that need strengthening.
Only 30.9% said that the board rather than the CEO supervised any outside compensation consultants hired by the bank. The authors said the board can better ensure a consultant’s conclusions are free from bias if the directors, and not the CEO, hire the consultant and oversee the work.
The task force has been instrumental in beefing up director education classes offered by several of the association’s vendors, Mr. Severson said. He said it is considering surveying board directors at the trade group’s member banks to find out what continuing-education courses might be useful to them.
Mr. Gerrish called the California task force an “excellent idea” and said other state trade groups should look into forming them.
“It always helps to network in a peer group, to see what others are doing,” he said. “Maybe someone has a better idea than you, or maybe it’s something that you haven’t thought of yet.”
