“You owe your customers and the public an explanation for the decisions that resulted in the costly failure of your bank – the second largest bank failure in the nation’s history – the extent to which you lobbied against rules that could have prevented this failure, and the extent to which you and other bank executives profited even as the bank teetered towards collapse,” concluded Senator Warren.

US banks have weathered the recent financial turmoil well, generating a record $80bn in first-quarter profits , according to reports. However, with regional banks continuing to fail, questions are being raised about the effectiveness of corporate governance practices. A report by the Financial Times suggests that “serious lapses in corporate governance” are contributing to the fragility of financial institutions.

The issues appear to be widespread, with Credit Suisse AT1 bondholders losing $1.7bn in a UBS deal.The World Economic Forum‘s Future of AT1 report warns that this could prompt a wider review of banking regulations. The report also predicts that businesses will continue to face headwinds throughout 2023, with financial conditions remaining tight.

Taking a “What if” approach, let us imagine that the write-down of AT1 was a disputable or possibly wrong decision. While retail investors await a final decision, latest research suggests that corporate fraud is destroying 1.6% of equity value each year, which equates to $830bn in 2021. Additionally, the increase in bankruptcy directors confirms that previous boards were not adequately prepared before Chapter 11.

As a result, it is time to evaluate the role of directors in failed organizations and measure how much value CEOs are responsible for creating or destroying. The results suggest that corporate governance is undervalued and not yet considered a source of competitive advantage to prevent such complications.

In light of recent corporate governance failures, companies must prioritize a thorough evaluation of their governance practices. To address the issue, board members should urgently redesign their 2023 board agenda to prioritize governance. Given that active institutional investors have played a crucial role in driving positive relationships between institutional ownership, board diversity, and corporate innovation, they need to adopt a more strategic approach in addition to tactical interventions. As shareholder activism evolves, activists must explore new battlefronts to address governance concerns.Proxy advisory firms, which play an essential role in promoting good corporate governance, must be effective arbiters of board quality.

To do so, they must avoid relying on one-size-fits-all policies that fail to consider firm-specific governance issues when advising their clients. By adopting a more nuanced approach to governance evaluation, proxy advisory firms can help companies strengthen their governance practices and enhance their long-term performance.