The Board of Directors, thus, needs to act as a check-and-balance against the Management with a view to ensuring the safety and soundness of the enterprise. Meanwhile, shareholders also expect the Board to perform its role as a watchdog or guarantor that the corporation would not incur losses or go into bankruptcy. They also expect the Board to check Management against excessive risk taking. Therefore, it goes without saying that if the roles of Chief of Management and the Chairman of the Board are performed simultaneously by the same individual, then other Board members cannot fully perform their duties of providing the check-and-balance required by good governance. Worse yet, shrewd CEO will tempt other Board Members with stock options so that they would go along with his policy direction. This would especially be the case when the CEO aims for high growth or business expansion, which usually implies a quick rise in the company’s equities. Though, these policies are often prone to higher risks, Board members may become less inquisitive and more optimistic in their judgment as a result of the personal interests in potential profits from stock options. At the end of the day, their own personal interests would overtake their sense of conservatism and responsibilities. BIS Review 24/2006  1  One can think of an even worse scenario when the CEO would like to cover up any wrongdoings or poor performances. Since this CEO is also chairman of the Board, he can easily influence the agenda of the meeting.
M R Pridiyathorn Devakula: Efficiency enhancements and risk management Remarks by Mr M R Pridiyathorn Devakula, Governor of the Bank of Thailand, at the Asian Bankers’ Seminar, Bangkok, 16 March 2006. *  *  *  Distinguished Guests, Fellow bankers, Ladies and Gentlemen, Today’s seminar covers wide-ranging topics of interests to the banking community ranging from efficiency enhancements to risk management needed to achieve sustainable business growth. While these issues are topical and useful to bankers, I believe that one cannot simply reduce risks by relying on risk management process alone. An effective risk management system has to be supported by proper governance of the bank’s Management and its Board of Directors. One of the painful lessons of the 1997 crisis was that improper governance practices at the Board level were amongst the root causes of the downfall of too many financial institutions. Back then, it was not unusual for banks to lend to related parties with close connections to their owners, directors, and management without the proper credit analysis. Board members of banks often neglected their responsibilities to blow the whistle against these imprudent activities. Many Board members also did not have adequate and timely access to the necessary information to detect such misdeeds so that appropriate actions could be taken to prevent the resultant damages. The concept of “governance” as understood in Western society and now introduced into our business organizations, including financial institutions, has served as a good starting point to rectify some of the root causes of the crisis.