Bank boards in the U.S. are far too often composed of directors with relatively little financial expertise, a new study has found.
Even though they are charged with overseeing financial institutions, the majority of directors who sit on U.S. bank boards are not financial experts, a new study from Nestor Advisors has found. Typically, only 15 percent of non-executive directors in the U.S. have financial industry expertise, while 30 percent of their European counterparts have these skills, the study says.
The disparity became even more pronounced in the wake of the 2008 financial crisis. In 2007, European and U.S. boards showed a similar degree of expertise. But by 2010, the composition of non-executive directors with financial expertise on European boards had grown to 30 percent from 22 percent, the study found. In the U.S., that percentage actually declined, to 15 percent in 2010 from 17 percent in 2007.
From the study:
We have argued that one of the most important problems of bank boards is the weak capacity of directors to understand banking, a business that has increased in complexity at a pace which is nothing short of extraordinary. While financial industry expertise (FIE) might be less of an issue in a pure commercial bank with a straightforward business model, we consider the number of board members with financial industry experience to be important for board dynamics.
The study continues:
This raises more questions since US banks seem to carry on their balance sheets much more complex assets and have more important investment banking operations than their European counterparts.
Bank directors often have other jobs in addition to sitting on the board, and they're not required to run a bank's day-to-day operations. But they serve a crucial role in making long-term decisions about the company.
Gender diversity was found to be low in both regions. Females comprise a median of 15 percent of board directors in U.S., and 14 percent in Europe, the study found.
READ the study below:
SUBSCRIBE AND FOLLOW
Get top stories and blog posts emailed to me each day. Newsletters may offer personalized content or advertisements.Learn more