53771 NOTE NUMBER 13 PUBLIC POLICY FOR THE PRIVATE SECTOR MARcH 2010 Bank Governance FINANCIAL AND PRIVATE SECTOR DEVELOPMENT VICE PRESIDENCY Laura Ard and Lessons from the Financial crisis Alexander Berg Pr i n c i p l e s of g o o d g ove r n a n c e h ave b e e n a m a j o r c o m p o n e n t of Laura Ard i n t e r n at i o n a l f i n a n c i a l s t a n d a r d s a n d a r e s e e n a s e s s e n t i a l t o t h e (lard@worldbank.org) is lead financial sector s t a b i l i t y a n d i n t e g r i t y of f i n a n c i a l s y s t e m s . O ve r t h e p a s t 10 ye a r s specialist, and Alexander m u c h e n e r g y a n d at t e n t i o n h ave g o n e t o i m p r ov i n g t h e a b i l i t y of Berg (aberg2@worldbank .org) program manager, in c o m p a ny b o a r d s , m a n a g e r s , a n d ow n e r s t o p r u d e n t l y n av i g at e r a p i d l y the Corporate Governance c h a n g i n g a n d vo l at i l e m a r ket c o n d i t i o n s . S o, h ow t o e x p l a i n t h e Group of the World Bank's Global Capital Markets eve n t s of 20 07­ 0 8 ? M a ny of t h e r e c e n t p r o b l e m s c a n b e t r a c e d t o Department. f l awe d i m p l e m e n t at i o n of g o o d p r i n c i p l e s a n d t o b e h av i o r p r o m pt e d This is the 13th in a by i n c r e a s i n g l y s h o r t- t e r m p e r f o r m a n c e h o r i zo n s . series of policy briefs on the crisis--assessing the Corporate governance refers to the set of rules and intermediate financial risk to generate revenue policy responses, shedding incentives through which the management of a and serve their clients, leading to an asymmetry light on financial reforms company is directed and controlled.1 Corporate of information, less transparency, and a greater currently under debate, governance frames the distribution of rights and ability to obscure existing and developing prob- and providing insights responsibilities among management, the board lems. They can also quickly change their risk for emerging-market of directors, controlling shareholders, minority profile, so weak internal controls can rapidly policy makers. shareholders, and other stakeholders and pro- cause instability. As a result, sound internal gov- vides the structure for setting, implementing, ernance for banks is essential, requiring boards and monitoring company objectives. A firm to focus even more on assessing, managing, and THE WORLD BANK GROUP committed to good corporate governance has mitigating risk. Good governance also comple- an empowered board, a solid internal control ments financial supervision and is an integral environment, high levels of transparency and part of effective risk-based oversight.3 disclosure, and shareholder rights that are well defined and protected.2 Governance failures in the crisis Banks have some specific corporate gov- The central irony of the governance failures ernance issues. Their stakeholders vary more that became apparent in the crisis is that many widely than those of other private companies, took place in some of the most sophisticated including not only shareholders but also, and banks operating in some of the most developed perhaps more significantly, depositors and the governance environments in the world, such as general public. Banks deliberately take and the United States and the United Kingdom. A BANK GOvERNANcE LESSONS FROM ThE FINANCIAL CRISIS variety of studies have analyzed the contribution Management-level weaknesses. In institutions with of weak governance to bank failure and, more weak risk governance systems, senior manage- broadly, to the financial crisis. Most of their con- ment failed to adopt and integrate the necessary clusions can be grouped into four broad areas: systems to identify, manage, and report risk. The Risk governance level and nature of aggregate risk arising in rap- Remuneration and alignment of incentive idly evolving balance sheets were not captured structures by systems and reports. Risk was not priced prop- Board independence, qualifications, and erly, either internally or by the market. Return composition4 on risk was not accurately reflected or analyzed, 2 Shareholder engagement and as a result, capital was not properly allocated on the basis of the actual level of business risk. Risk governance Moreover, funding and liquidity were not prop- A lack of effective risk governance tops the erly structured and planned. list of governance failures leading to the crisis In some cases risk measurement systems (OECD 2009; UBS 2008; U.K. Treasury 2009). narrowly focused on readily identifiable or Risk governance is generally defined as board already recognized risks and did not conduct and management oversight of risk and the adequate surveillance for other, less obvious attendant configuration of internal systems for and higher-level risks (U.K. Treasury 2009). identifying, measuring, managing, and report- Risk management was generally confined to ing risk. "silo" arrangements and therefore isolated along product and organizational lines Board-level weaknesses. While effective risk gover- (Senior Supervisors Group 2008). nance has many elements, it is the board that is Risk management units lacked the visibil- ultimately responsible for ensuring that all risks ity, stature, or independence to consolidate to the bank are identified, evaluated, and suit- institution-wide risks and elevate concerns to ably managed. Many boards lacked a compre- a level sufficient to prompt a response from hensive understanding of their institution's risk management and the board. profile and were unable to judge its appropriate- By contrast, banks with good risk governance ness, in part for the following reasons: systems were able to respond with more flexibil- Incomplete risk information was transmitted ity (Senior Supervisors Group 2008). While no to boards, leading to a false sense of security. financial institution appears to have fully antici- There was a fundamental lack of expertise pated the magnitude of the crisis, the way in among nonexecutive directors. which institutions were able to respond--and to Executives used boards as a "group think" influence their outcomes--depended in large function rather than as a forum for vetting part on the strength and configuration of their strategic risk issues. internal risk governance structure. The boards There was an overreliance on regulatory of the institutions better able to weather the and compliance mechanisms to "catch" and storm generally received timelier, more com- report new or inappropriate sources of risk. plete, and enterprise-wide risk information, This created a sort of "autopilot" risk mental- enabling them to make critical decisions to cur- ity (U.K. Treasury 2009). tail risk earlier--before asset values plummeted Lack of timely information for the board and market-based sources of funding became due to failures in risk management systems was inaccessible. evidently a problem at several major financial institutions, including UBS (UBS 2008). At Remuneration and incentive alignment Northern Rock, by contrast, the board appeared Good practice suggests that boards should strive to know the funding risks but decided not to to align executive and board remuneration with hedge them with backup credit lines. Ladipo the longer-term interests of the company and and Nestor (2009) report important differences its shareholders (OECD 2004). Over the past in the amount and type of information reaching 10­20 years this general goal was interpreted in the boards of European banks. the United States and elsewhere to mean greatly increased use of equity-based, variable compen- given the strength of the CEO/chairman, hav- sation, including stock options (Bebchuk and ing just one or two board members with techni- Fried 2004). cal expertise is reason for caution. One or two But the financial crisis has led to greater lone voices in a boardroom may not be enough skepticism about the structure and use of to preserve "independence of mind." incentive-based compensation. Executives of Third, boards were less independent than banks (particularly failed ones) were seen as they appeared. On the basis of New York Stock reaching for short-term yield at the expense of Exchange rules, more than 74 percent of the their firm's long-term stability and value. This board members were considered to be indepen- 3 problem was compounded by the short-term dent. But a closer look points to asymmetrical nature of incentive structures, particularly power exercised by the CEO/chairman, a lack of those designed for the traders and business independence of mind and spirit, and therefore lines dealing with the offending products. In a clear lack of productive tension. For example, some cases the relatively high proportion of while many of the nonexecutive directors met variable pay (bonuses), and thus low fixed sala- the technical requirements for being considered ries, required companies to issue bonuses even independent, most had been in place for a long when the business was not profitable. time, from an average of 4 years at Merrill Lynch to 10 at Bear Stearns. In three noteworthy cases Board professionalism (Bear Stearns, Lehman Brothers, and Merrill One key to aligning the interests of the company Lynch) the term of the CEO/chairman substan- with those of its shareholders is to ensure board tially exceeded that of the nonexecutive direc- objectivity with the goal of preserving a bal- tors, indicating an imbalance of authority and ance of power--or a certain level of "productive potentially excessive sway over the appointment tension"--among directors. This requires ensur- and turnover of board members. ing effective leadership by the board chairman and the chief executive officer (CEO), appoint- Shareholder engagement ing experienced nonexecutive directors, and According to good corporate governance prac- assigning key tasks to board committees that tice, shareholders have a number of basic rights include a majority of nonexecutive directors. and obligations. These include the right to When productive tension is lost, the ability of appoint directors, the right to make key corpo- the board to respond to arising risks, address rate decisions, and the right to obtain informa- management issues, and maintain an objective tion about the company to inform their decision perspective can be threatened. A closer look at making and prevent management from making the boards of six distressed investment banks decisions contrary to their interests. At the same revealed several common characteristics (di time, institutional investors (which own most of Benedetta 2009; Nestor Advisors 2009). the shares traded in many markets) should play First, the positions of chairman and CEO an active and informed role. They should par- were combined. While this violates good prac- ticipate in the governance process, engage with tice in many countries, the "imperial CEO" is company management, and vote their shares typical among many large, publicly listed U.S. responsibly. financial institutions. Basic shareholder rights can be frequently vio- Second, there may have been too few execu- lated, however, and institutional investors often tives on the boards. Nestor Advisors cites the rel- fail to live up to good-practice expectations. In atively small number of executives serving on the the United States dissident shareholders who boards as a factor compounding the concentra- put forward slates of directors for election are tion of power in the CEO/chairman. Technical "confronted by substantial obstacles" and often and institutional expertise may have been shal- cannot get a nonbinding resolution on compen- low, concentrated in the hands of a few, or lack- sation passed (Bebchuk and Fried 2004, p. 25). ing voice in boardroom dynamics. Some of the And institutional investors in many countries are highly troubled banks, such as Northern Rock, passive, fail to vote, or have conflicts of interest did have banking experience on the board. But with the companies in their portfolio. BANK GOvERNANcE LESSONS FROM ThE FINANCIAL CRISIS As a result, boards can become insulated International responses from investors in these countries, and share- International organizations and standard set- holders are forced to rely on independent board ters, including the Organisation for Economic members to oversee management and mitigate Co-operation and Development (OECD), conflicts of interest. As suggested, however, Financial Stability Board, and Basel Committee board independence alone does not appear to on Banking Supervision, have launched several have been able to control excessive risk taking by reviews on the role of corporate governance in banks, the growth of executive compensation, the crisis and are updating their principles and and, ultimately, the riskiness of the banking sec- guidelines accordingly. The OECD's analysis of 4 tor during the crisis. corporate governance and the financial crisis Yet evidence for the overall value of share- will feed into an eventual review of its assessment holder engagement has been mixed, and active methodology and a possible review of its corpo- shareholder engagement remains somewhat rate governance principles (OECD 2009). The controversial. In fact, some accuse shareholders Financial Stability Board's work on strengthen- of behaving badly during the crisis. For exam- ing the global financial architecture includes ple, Acharya, Gujral, and Shin (2009) consider recently issued principles and implementation the continuing payout of dividends during the standards for sound compensation practices that crisis, including by several of the banks that address the governance framework surround- subsequently received public assistance, as the ing public disclosure, supervisory oversight, the "quintessential reflection of a failure of gover- determination of compensation systems, and nance of banks." the compensation structure needed to ensure risk alignment (FSB 2009a, 2009b). The Basel Policy responses Committee will revise its bank governance prin- Policy responses to bank governance issues ciples by 2010, with a key focus on board prac- range from direct government interventions to tices, risk governance, transparency, and "know revisions in international standards and regula- your structure." The revised principles will also tory reforms by national authorities. incorporate aspects addressing compensation from related work of the Basel Committee and Direct government interventions of the Financial Stability Board. 5 The most obvious governance-related policy These reviews and revised guidelines gener- responses have accompanied government sup- ally focus more on effective implementation of port to troubled financial institutions. For existing principles, laws, rules, and codes than example, on June 10, 2009, the U.S. govern- on radically different or additional standards. ment appointed a new official with the power Many fear that more rigid, prescriptive regu- to approve the compensation packages of execu- lation would result in "form over substance" tives at any major firms receiving "exceptional compliance while failing to achieve better risk assistance" from the government, including AIG, governance and more effective board and over- Citigroup, and Bank of America. In Germany sight structures. banks participating in the support fund for capi- tal injection and troubled asset purchases were Regulatory reforms required to cap executive compensation and Regulators are pursuing reforms through man- ban dividends and bonuses. Other European datory rules applicable to financial institutions governments have added board representation, and through enhancements to corporate gover- assumed the authority to change selected man- nance codes applicable to all listed companies. agement appointments, or done both. But these The postcrisis regulatory changes are focusing measures address only troubled financial insti- mainly on remuneration, board composition tutions, not the system as a whole. They also run and independence, shareholder rights and obli- the risk of being perceived as short-term politi- gations, and risk management. cal gestures if there is no policy or institutional framework in place to support the government's Remuneration. The debate continues over the role as owner. design of executive compensation packages, including the optimal split between the fixed although in many countries related reforms have component (salary) and the variable compo- not yet advanced: nent (stock options, bonuses, and other forms Separation of the positions of CEO and chairman. of remuneration) as well as the relationship Distressed banks had a mix of both models, with risk, long-term performance, and share- and success or failure seemed to depend more holder interests. The experience with varying on the balance of power and board dynam- allocations of fixed and variable compensation ics. Requirements for separation of the posi- is mixed. Banks with both small and large pro- tions of chairman and chief executives have portions of variable compensation took signifi- become increasingly common. 5 cant risks and incurred substantial losses in the Board independence. The emphasis on indepen- crisis. Moreover, there is much variation among dent directors has begun to moderate as it countries and institutions in the proportion becomes increasingly accepted that indepen- of equity-based compensation; according to a dence of mind and quality of judgment and study by Nestor Advisors (2009), in the six U.S. character are more important than compli- investment banks under analysis the salaries ance with a legal definition. Moreover, grow- of top executives averaged 2 percent of their ing emphasis is being placed on the overall total annual compensation, compared with the composition of the board and on the dynam- European salary average of 20­35 percent. In ics established through the mix of skills and two of the more spectacular investment bank experience. failures, Bear Stearns and Lehman Brothers, the Industry experience. There appears to be a con- CEOs had substantial "total at-risk wealth" and sensus that having more nonexecutive direc- suffered the consequences of their bad decisions tors with industry experience is essential and along with every other significant shareholder, that all directors must dedicate more time suggesting that alignment of incentives alone to their duties. Board performance evalua- was not the problem. tions are likely to become more formal and Several European countries have recently public. adapted their corporate governance framework in response to concerns about remuneration. Shareholder rights and obligations. While the fail- The debate has centered largely on executive ure of shareholders to actively engage has been compensation packages, with relatively little broadly recognized, the solution to such passiv- focus on the remuneration of some of the more ity is more elusive and complex. In the United pivotal players in the financial crisis--the busi- Kingdom the Walker Review (U.K. Treasury ness line managers who crafted the products that 2009) focuses on the major institutional share- later blew up and the traders who took aggres- holders of banks, encouraging them to dis- sively risky positions. Good practice, as reflected charge their assigned role more responsibly and in such reports as the Walker Review in the to engage more productively with their investees United Kingdom, therefore extends "the terms rather than automatically resorting to divest- of reference of the remuneration committee to ment given certain circumstances. The review accordingly include responsibility for setting further encourages fund managers to confirm the over-arching principles and parameters of their commitment to a stewardship obligation remuneration policy on a firm-wide basis" (U.K. or, if they are unwilling to do so, to explain their Treasury 2009, Recommendation 28, p. 20). investment approach. It also recommends that The concept of capping executive pay has also fund managers commit to the ISC Principles of received wide attention. However, this proposal Stewardship.6 Other commentators go further has generated a groundswell of concern among by advocating that institutional investors be bankers and corporate constituents given the required to disclose their voting records from attendant issues of an uneven international play- investee company shareholder meetings. ing field and government interference. In the United States legislation has been pro- posed that gives company shareholders a non- Board professionalism. The crisis has reignited the binding vote on executive compensation ("say debate on board effectiveness on several fronts, on pay"). A separate bill introduced in the U.S. BANK GOvERNANcE LESSONS FROM ThE FINANCIAL CRISIS Senate proposes a variety of new shareholder standard setters expect risk management func- powers, many of which are already standard in tions to become more formalized and expect other countries, although the topic of share- risk management and control functions to be holder engagement remains controversial. independent of profit centers, operate increas- ingly on an enterprise-wide basis, and have more Risk management. Given the importance of risk accountability to the board. management issues in the crisis, it is surprising In the United Kingdom the Walker Review that the recent reforms have not given more calls--for the first time in that country--for a attention to risk governance. Some of the newer board-level risk committee and for the creation 6 codes in the European Union (such as those of of the position of chief risk officer to support Belgium, France, and the Netherlands) give board-level risk governance and "participate in increased responsibility for risk to the board's the risk management and oversight process at audit committee, but in most cases these changes the highest level on an enterprise-wide basis" are merely implementing past EU directives. (U.K. Treasury 2009, Recommendation 24, p. There is also a concern that audit committees, if 19). These proposals are likely to establish good assigned responsibility for risk oversight as well, practice and may well be emulated in other will become overburdened. The international jurisdictions. Table Bank governance policy issues in developed countries and emerging economies 1 Risk governance Developed countries (crisis-related findings) Risk management systems were often deficient. Boards did not understand their bank's risk profile. Emerging economies Major area of concern in emerging economies. Boards may not understand their role or set appropriate risk-taking Strategies were not accompanied by a sufficient consideration of the strategies. risks involved. Rapid growth in many institutions, and resulting increases in risk, are not Risk management functions in several banks lacked adequate visibility matched by improvements in risk governance. or stature. Risk management systems are only now evolving. Remuneration Increased skepticism about the use of incentive-based compensation. Direct remuneration is less of a policy concern. and alignment Executives seen as reaching for short-term yield at the expense of the The opposite problem (low-paid executives and boards) is sometimes of incentive firm's long-term stability and value. identified. structures Weak design of compensation packages, including the optimal split Lack of adequate disclosure is a major issue. between the fixed and variable components and the relationship with risk, Indirect forms of compensation (benefits and privileges) may be a larger long-term performance, and shareholders' interests. problem. Board Studies of failed institutions suggest erosion in the independent and Large problem in emerging economies, but with different characteristics. professionalism objective oversight role of boards. Boards tend to be passive and insular. In the United States the positions of chairman and CEO were combined; Board and executive capacity is a key concern. the "imperial CEO" remains common practice. Family ownership is prevalent, leading to lack of separation of roles of Boards were less independent than they appeared. ownership, board representation, and management. There may have been too few executives on boards. Putting independent boards in place is a particular challenge. Technical expertise may have been inadequate. Disclosure and Significant financial and nonfinancial disclosure. Major concern and a key problem. transparency Variety of problems in, and debates over, accounting standards (such as Many countries are moving toward adopting International Financial fair-value and consolidation accounting). Reporting Standards. Concerns over sufficient disclosure of risks. Enforcement mechanisms are weak. Ownership is often opaque. Shareholder Debates over shareholder engagement and passivity during run-up to Shareholder rights have improved, but problems remain with the roles and rights crisis. application of rules designed to protect small shareholders against In the United States shareholders are rarely able to veto board members expropriation. or propose new ones in annual meetings. The state (a major owner of banks in many countries) is typically a poor owner that often plays by its own rules. Source: World Bank. Relevance for emerging economies upgrading the skills, experience, and leader- These corporate governance issues are not lim- ship of nonexecutive directors and rebalancing ited to developed countries. Similar issues have the productive tension that should come with a been highlighted by World Bank work on cor- high-performing board. Shareholders, particu- porate governance in a range of countries7 as larly longer-term institutional investors, can play well as by specialized reviews of the corporate a role in this respect through more responsible governance framework for financial institu- interaction with the boards and a focus beyond tions carried out in response to client demand short-term returns that might compromise (table 1).8 The same general topics--risk gov- longer-term safety and soundness. 7 ernance, remuneration, board professionalism, The most obvious governance-related policy and shareholder roles and rights--are impor- responses have accompanied government sup- tant in every country, although the details and port to troubled financial institutions. In addi- their relative importance may differ. tion, international organizations and standard Yet many of the issues that drove the finan- setters are updating their principles and guide- cial crisis are specific to the peculiarities of cor- lines, focusing more on the effective imple- porate governance in countries like the United mentation of existing rules than on radically States and the United Kingdom. These peculiar- different or additional standards. Governments ities stem from the relatively dispersed owner- and regulators are also pursuing reforms, both ship structure of large companies and financial through mandatory rules applicable to financial institutions in these countries, which gives rise institutions and through enhancements to cor- to unique corporate governance problems and porate governance codes applicable to all listed concerns relating to the conflict of interest companies. Reforms are expected in executive between managers and shareholders. In most remuneration, board independence and compo- other countries, including emerging economies, sition, and risk governance structures. such ownership is concentrated. This means that The issues are not solely developed-country some of the problems raised by the crisis (espe- issues. Some problems present in developed cially issues of executive pay) are less prominent markets during the financial crisis, such as in emerging economies. issues of executive pay, are less prominent else- where, while others, such as opaque and concen- conclusion trated ownership, feature more prominently in If there is one lesson from the current crisis-- emerging economies. There are lessons to be a lesson consistent with the Asian financial learned on corporate governance failures for crisis--it is that corporate governance matters. all countries. The central irony of the governance failures in this crisis is that many took place in some of the most sophisticated banks operating in some of the most developed governance environments Notes in the world. But different financial institutions The authors would like to thank Constantinos Stephanou, in those countries have fared differently during Katia D'Hulster, Neil Gregory, and Damodaran Krishna- the crisis, depending in part on the strength murti for their valuable comments and suggestions. of their overall governance framework and 1. While this brief focuses on bank governance, most culture. if not all of the issues discussed apply to all financial While studies and reviews document several institutions. The OECD Principles of Corporate Governance, governance failures, one common conclusion first drafted in 1999 and revised in 2004, are the basic is that much of the existing governance frame- standard for good practice in corporate governance work is generally adequate and should remain and focus on "publicly traded companies, both financial intact. But the devil is in the details of imple- and non-financial." Governance elements are also mentation. A key priority is to increase the embedded in principles and other guidance issued by capacity of boards to oversee strategic risk tak- international standard setters. ing and to accurately judge institutional perfor- 2. For more on the governance of financial institu- mance. Improving board capacity will require tions, see World Bank, "Strengthening Financial Sector BANK GOvERNANcE LESSONS FROM ThE FINANCIAL CRISIS Governance," http://go.worldbank.org/M0IQDL2UB0. Bebchuk, Lucien, and Jesse Fried. 2004. Pay without Per- 3. The Basel II framework requires that banks formance: The Unfulfilled Promise of Executive Compensa- maintain strong internal governance procedures and tion. Cambridge, MA: Harvard University Press. processes. Pillar 2 (supervisory review) in particular re- di Benedetta, Pasquale. 2009. "A Governance Snapshot quires that banks maintain well-functioning systems of of Five Investment Banks." Capital Markets and crisisresponse internal controls and risk measurement, management, Corporate Governance Department, Financial and and mitigation--and adequate processes of review by Private Sector Development Vice Presidency, World management and directors. Bank, Washington, DC. The views published here 4. Following standard practice, this brief uses board to FSA (U.K. Financial Services Authority). 2009. "Reform- are those of the authors and refer to both the board of directors in a one-tier system ing Remuneration Practices in Financial Services." should not be attributed and the supervisory board in a two-tier system. Similarly, Consultation Paper 09/10. http://www.fsa.gov.uk/. to the World Bank Group. it uses CEO (chief executive officer) to refer to the senior FSB (Financial Stability Board). 2009a. "Principles Nor do any of the conclusions manager of a company (managing director and the like). for Sound Compensation Practices." http://www represent official policy of 5. The Basel Committee on Banking Supervision (2009) .financialstabilityboard.org/. the World Bank Group or has recently issued supplemental guidance for Pillar 2 of ------. 2009b. "Principles for Sound Compensation of its Executive Directors or the Basel II capital accord, which addresses, among other Practices: Implementation Standards." http://www the countries they represent. things, firmwide governance, risk management, and in- .financialstabilityboard.org/. centives for managing risk and return over the long term. Ladipo, David, and Stilpon Nestor. 2009. "Bank Boards To order additional copies 6. The Institutional Shareholders' Committee (ISC) in and the Financial Crisis: A Corporate Governance contact Suzanne Smith, the United Kingdom set out basic responsibilities and Study of the 25 Largest European Banks." Nestor managing editor, principles for shareholder engagement in its 2007 State- Advisors, London. The World Bank, ment of Principles (annex 8 of the Walker Review). Nestor Advisors. 2009. "Governance in Crisis: A Com- 1818 H Street, NW, 7. Corporate governance is among the 12 core inter- parative Case Study of Six US Investment Banks." Washington, DC 20433. national standards for sound financial systems assessed NeAD Research Note 0109. London. Telephone: under the Report on the Observance of Codes and OECD (Organisation for Economic Co-operation and 001 202 458 7281 Standards (ROSC) program. Since 2000, 72 assessments Development). 2004. OECD Principles of Corporate Fax: have been completed in 52 countries. Governance. Paris. 001 202 522 3480 8. Reviews of bank governance are conducted accord- ------. 2009. "Corporate Governance and the Financial Email: ing to the World Bank's established methodology, which Crisis." Paris. ssmith7@worldbank.org is based on the principles set forth by the Basel Com- Senior Supervisors Group. 2008. "Observations on Risk mittee. Ten such reviews have been conducted to date. Management Practices during the Recent Market Produced by Communications Turbulence." http://www.ny.frb.org/. Development Incorporated References UBS. 2008. "Shareholder Report on UBS' Write- Acharya, Viral V., Irvind Gujral, and Hyun Song Shin. Downs." http://www.ubs.com/. Printed on recycled paper 2009. "Bank Dividends in the Crisis: A Failure of U.K. Treasury. 2009. "A Review of Corporate Gover- Governance." March 31. http://www.voxeu.org/. nance in UK Banks and Other Financial Industry Basel Committee on Banking Supervision. 2006. Entities: Final Recommendations" (Walker Review). Enhancing Corporate Governance for Banking Organiza- http://www.hm-treasury.gov.uk/. tions. Basel: Bank for International Settlements. ------. 2009. Enhancements to the Basel II Framework. http://www.bis.org/. This Note is available online: http://rru.worldbank.org/PublicPolicyJournal