Corporate Governance of Banks: An interdisciplinary approach to establish a sound culture

The 2008 financial crisis shed light on the immoral conducts, reckless practices and the widespread short-sightedness that affected the entire financial sector. As a result, a wave of legislative reforms hit all financial institutions, especially in relation to capital and liquidity requirements, but also to corporate governance and investor protection regulation in general. However, inadequate rules, bad corporate governance and a lack of public enforcement cannot fully explain malpractice. On the contrary, the roots of misconduct cannot be completely understood without a prior analysis of the various cultural and psychological dynamics underlying financial operators’ practices. Therefore, a new approach is required, in which legal and economic studies intersect with sociology, psychology, anthropology and neuroscience, to get a better understanding of the main determinants of human behaviour. We cannot expect banking institutions – that are run by human beings – to be ‘fixed’ without investigating or even considering why people deviate from lawful conduct rules. Moreover, as the nature of the determinants of misconduct is behavioural and cultural, and since regulation per se cannot be expected to promote good corporate culture, in this thesis I argue that boards and supervisors should be primarily responsible for the enactment of a cultural change. The thesis consists of two main parts. In the first part, I analyse bank governance institutional framework based on the international and European agenda. In the second part, I explain why there is a need to reinterpret corporate governance principles and practices in the light of sociological and behavioural sciences, in order both to avoid financial misbehaviour and induce banks to take part of the path towards sustainable development in the light of the UN 17 Sustainable Development Goals. In particular, I analyse traditional corporate governance issues, such as board composition requirements, leadership, compliance, risk management and executive compensation in the light of studies by researchers in behavioural economics, organizational culture and neuroscience. Moreover, I analyse how supervisors and institutional investors could play an active role in supporting the board in the establishment of a new cultural model. Finally, I describe the recent initiatives on sustainable finance, which are undoubtedly going to accelerate the transition to a long-term stakeholder-oriented approach to economic growth.