A review of the influence of corporate governance on the banking crises in the United Kingdom and Germany

Ross, Andrew G; Crossan, Kenny

Abstract

Purpose - The purpose of this paper is to provide an overview of corporate governance structures in the UK and Germany addressing the extent to which corporate governance structures may have been a contributory factor to the recent banking crisis. Following a review of shareholder and stakeholder theories of corporate governance and a comparative overview of corporate governance codes in the UK and Germany, we provide some country level macroeconomic data and performance related data for a small number of large banks in the UK and Germany. Findings suggest that while corporate governance in banks would appear to have been a significant factor in the recent banking crisis, based on the performance data, it cannot be said that a corporate governance approach based on either shareholder capitalism (UK) or stakeholder capitalism (Germany) is more at fault than the other. However, it is clear that UK and German corporate governance structures were not adequate to prevent the recent banking crisis and only time will tell whether the remedial actions taken have been sufficient.

Design/methodology/approach - The rest of this paper is structured as follows. Section 2 reviews the existing literature that underpins the stakeholder vs. shareholder debate within corporate governance. In section 3 the current codes of conduct and governance structures implemented by UK and German banks is reviewed. An analysis of the extent to which the banking crises can be attributed to failures in governance is presented in section 4 and finally some conclusions and recommendations are outlined in section 5.

Findings - Our findings, in line with those presented in the Walker report (2009) suggest that the codes of conduct in both countries were not adequate to deal with the complex issues caused by the financial crisis and that changes need to be implemented. We fully acknowledge that corporate governance only played a part in the financial crisis and in order to try to stop a repeat of this, the whole regulatory environment in both countries needs to be strengthened.

Research limitations/implications - There main limitation of the study lies with a lack of complex analysis undertaken to support the findings.

Practical implications - The findings from the study suggest that, regardless of the type of governance in operation, current corporate governance rules were not adequate and that a new set of rules are need in both the UK and Germany. The findings also suggest that the stakeholder/shareholder debate may not be as important as previously claimed and that regulators need to find good governance rules, regardless of theoretical underpinnings.

Originality/value - The paper is original as it is the first attempt to discuss the corporate governance failing and the banking crises from a shareholder/stakeholder perspective.

Citation

Ross, A. G., & Crossan, K. (2012). A review of the influence of corporate governance on the banking crises in the United Kingdom and Germany. Corporate governance : the international journal of business in society, 12(2), 215-225. https://doi.org/10.1108/14720701211214098

• Journal Article Type: Article
• Acceptance Date: Sep 30, 2010
• Online Publication Date: Apr 30, 2012
• Publication Date: Apr 30, 2012
• Deposit Date: Jan 31, 2012
• Journal: Corporate Governance: the international journal of business in society
• Print ISSN: 1472-0701
• Publisher: Emerald
• Peer Reviewed: Peer Reviewed
• Volume: 12
• Issue: 2
• Pages: 215-225
• DOI: https://doi.org/10.1108/14720701211214098
• Keywords: Banking; Code of Conducts; Corporate Governance; Europe; Governance
• Public URL: http://researchrepository.napier.ac.uk/id/eprint/4953
• Publisher URL: http://dx.doi.org/10.1108/14720701211214098