A governance code that forces regulators to clearly define the purpose of banks is much needed.

Sir you write, “From January 1, a revised corporate governance code will apply to UK-listed companies, for instance. It now states that the board’s duty is to ‘establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned’”. “Taking the measure of good corporate culture” December 27.

Sir, if only such code had existed and been applied by bank regulators.

As is the risk weighted capital requirements for banks which so dangerously distorts the allocation of credit to the real economy, were developed without any consideration to what is the purpose of banks, that is unless you think that being a safe mattress into which to stash away cash, is all that banking is about.

If “What are banks for?” had been asked, the Basel Committee would not have allowed banks to leverage much more with “safe” residential mortgages than with “risky” loans to entrepreneurs, those who could perhaps help to create more of the jobs needed in order to be able to service the mortgage and pay utilities.

You also write: “The Banking Standards Board, set up in 2015 to help the UK sector regain trust, runs an annual assessment of members, monitoring areas from honesty to accountability with a staff survey, focus groups and interviews.”

Sir, with respect to accountability, has that Board ever asked regulators why they think that what bankers perceive risky is more dangerous to our bank systems than what they perceive as save?

@PerKurowski

Should directors do “good” things for their shareholders without informing them?

Sir, I do not really understand John Kay’s “Directors have a duty beyond just enriching shareholders” June 5.

Does Mr. Kay suggest that the proposal of not using all available legal means to avoid paying taxes could receive the same type of enthusiastic response at a shareholder’s meeting, than one of keeping the workforce happy, or one directed to help reduce the environmental impacts of the company? I doubt it.

Or is Mr. Kay suggesting that the directors should pay more taxes than needed and keep this information silent, for their shareholders’ own good? Should they receive a bonus based on how much undisclosed good they have done for their shareholders too?

In June 2004, there was an unwitting but de facto terrorist act against the good corporate governance of the credit rating agencies.

Sir, of course we fully agree with John Gapper in that “Credit rating agencies must beware of the law” February 7. But!

Let us say you had a credit rating agency and which with some mistakes here, and some there, some worse than others, had been able to reasonably prosper over the years. And then suddenly, in June 2004, with Basel II, bank regulators decided that if a security was rated AAA or AA by your company, banks could hold these against only 1.6 percent in capital, meaning banks could leverage their capital with the expected risk-adjusted returns of that instrument an amazing 62.5 times to 1.

Anyone who does not understand what a de facto tsunami sized terrorist act against good corporate governance that meant, does not know what he is talking about, or is just out selling himself on a holier than thou basis.

The world has a serious shortage of elites.

Sir at long last we might now be starting to debate what should have been debated all the time namely how to ensure true accountability and true good governance that ensures that our human endeavors lead us to a better tomorrow instead of having us all sign up as baby-boomers on a Après nous le déluge.

Jessica Einhorn in “Corporate governance without a hint of systemic surveillance” begins putting her finger on important pieces of said debate pointing out that “few corporate managers today are permitted the luxury of thinking about long-term returns for their ever changing cast of investors”, “that regulatory activist… have special interests and they do act to further them through initiatives in corporate governance” and “that we need to hold our public officials accountable for thinking through systemic issues”.

Could the glue that help us overcome the above mentioned challenges be found anywhere else than in an enlightened elite of families capable of including all humans as heirs? I do not think so!

Whistleblowers of the world unite!

“Managers need to listen before disaster strikes” writes Michael Skapinker March 17. Everyone agrees none argue against it and still it is almost impossible to achieve most often because what management and others would qualify as disaster varies dramatically. Sometimes the only real disaster is the pure possibility of a disaster being acknowledged.

But what can we do? Let me have a go at it. Since a corporate climate that is unreceptive to whistle blowers could hide a time bomb credit rating agencies should never be able to give more that a B- to any company that does not achieve some minimum results in a yearly secret internal ballot held on various governance issues.

That could help some managers to start listening.

Assign to the diasporas a chair at the World Bank

Sir Michael Fullilove in “The world must adapt to diasporas” February 15, holds out that the “world would profit from developing an understanding…of diasporas issues” and I could not agree more.

As a former Executive Director at the World Bank (2002-2004) I believe that instead of wasting our time reshuffling the votes among geographically bound my-own-backyard interests, we need to assign one of the chairs at the board of the World Bank to the working emigrants community (and another one to the multinationals).

In 2007 the emigrant workers of El Salvador remitted to their homeland 3.7 billion dollars which, if this amount represents fifteen percent of their earnings means that their gross income was around 24.7 billion dollar. The official GDP of El Salvador, if we reduce it by the amount of the remittances, is then only 14.8 billion dollars. Now, you tell me ¿where is really El Salvador? Should not the Salvadorian diasporas have 50% of the seats on the Legislative Assembly of El Salvador?

Doing the same operation as above for the whole world we calculated that the Gross Diaspora Product is greater than that of the GDP of India, perhaps even China’s, and so why should not the diasporas sit at the executive board of a World Bank in globalized times?

Do we then need two world banks?

Sir, Krishna Guha and Eoin Callan, September 13, in reference to a report on the role played by the World Banks internal anti-corruption unit, the Department of Institutional Integrity (INT) were told by Paul Volcker, the main responsible for the report, that “his inquiry had ‘reconfirmed’ there was ‘ambivalence’ in the bank as to whether they really want an effective anti-corruption program or not”. Wrong! Having been an Executive Director at the bank (2002-2004) I sincerely believe that an overwhelming majority of the bank staff clearly comes out in favour of more and better anti-corruption efforts but that these do not come into fruition only because part of the management, rightly or not, believe that these could hinder the bank from operating efficiently… at least as they wish for it to operate for whatever reason efficiently.

If we discuss “ambivalence” then perhaps we should also discuss what the report does not touch upon and which frankly I consider being the single most outstandingly ugly blemish on the World Bank’s reputation. Sir, please search out INT on the external website of the World Bank and click on the list of Debarred Firms and Individuals. There you will find, duly named and shamed, a list of names of individuals that one way or another after a due process have been considered to be involved in corruption, but that list does not include the name of one single of those officers of the World Bank that presumably must also have been involved in corruption one way or another. Susanne Folsom the Director of INT, on a Q&A session on that same site mentions, “We’re often asked why we don’t publicly name Bank staff who are terminated for fraud and corruption as well. The Bank’s rules don’t allow such disclosures….” What credibility can you get naming others while not being willing to name your own?

Sir, it might very well be that the “ambivalence” on anti-corruption in the World Bank is insurmountable but if so perhaps what we need is to have two world banks since the world definitely needs one that comes out completely and unabridged against corruption. And mind you I am far from being a zealot on this issue, since life has taught me well that zealousness frequently carries within its own even more dangerous breed of corruption.

What is lacking in the Sarbanes-Oxley Act

Sir, Requiring all senior management and board members of companies to disclose publicly what they understand and what they do not understand of the business they are in charge of would do wonders for corporate governance, especially when we start hearing so many cries of ‘I did not know’. For instance, when using sophisticated financial instruments such as derivatives, we could suddenly realize that no one upstairs has a clue of what they, the experts downstairs, are up to, and this could be a quite instructive for the market and the credit-rating agencies when they assess the risks of a corporation.

By having clues I do of course not refer to any specific know-how needed to take apart and put back a carburettor, as very few would be able to do that, and in fact I am not even sure carburettors any longer exist. No, what I refer to is whether they to have a good working knowledge of some basics, like how a car drives, how it brakes, how much petrol it consumes, and what to do if a tyre explodes or an airbag suddenly inflates.

To oblige recognition and acceptance of where the buck really stops both in theory and practice and before mishaps occur could also be useful for shedding light on some systemic risks that, like lava in a volcano, might be building up dangerous pressures underneath the world of finance. It could also provide immediate relief to all those executives living out there, burdened with the constant stress of having to feign that they are in the know.

Sarbanes Oxley SOX corporate governance accounting