21 January 2019

BIS: Luís Máximo dos Santos: Corporate governance - importance and limits

Speech by Mr Luís Máximo dos Santos, Vice-Governor of the Bank of Portugal, at the Conference "Corporate Governance - creating value for society", in which he summaries the regulatory requirements imposed by European and national legislation in corporate governance area.

With the financial crisis, it was politically inevitable, as a result of the understandable social pressure, that the theme of banks' internal governance moved from soft law to hard law. 

Is the regulatory framework and the oversight of its compliance by the authorities enough to prevent behaviours similar to those that caused the financial crisis?

There is no doubt that this regulatory reinforcement, established and supervised uniformly at European Union level, enables us to say that we are much better provided for in terms of corporate governance requirements to ensure financial stability, which cannot go unmentioned.

But organisations are formed of people, and as such, the behavioural dimension has been recognised as essential for the effectiveness of a good internal governance model for banks and other enterprises. Even the best models may not resist the determination of anyone who might want to sabotage them. But the better they are, the more difficult it is to do so, hence the extreme importance of banks being provided with a robust governance model.  

Without an institutional culture that is oriented towards compliance with rules and best practices, based on values that ensure a lasting reputation, and which are therefore a source of value for the enterprise, the objectives of public regulation may not necessarily be achieved.

In fact, institutional culture is an intangible concept but is decisive to the effectiveness of corporate governance.

Exemplary behaviour is developed in a social environment and becomes more difficult to obtain unless there is an inherent reward.

If society does not value the ethical character of behaviours, it is difficult to expect that an organisational culture emerges in enterprises which favours the effectiveness of good governance and best practice.

For that reason, ensuring the effectiveness of good corporate governance is not only a task for enterprises, regulators and supervisors; its effectiveness depends on our collective ability to create a society that duly values ethics.  

Full speech

© BIS - Bank for International Settlements