Credit Suisse is history after almost 170 years due to a wrong strategy and years of mismanagement. The return was not in sustainable proportion to the risk taken, and losses were accompanied by countless scandals with no prospect of recovery. Credit Suisse’s corporate governance failed.
The board of directors is responsible for the definition of strategy and organization, which encompasses all aspects of corporate governance, including the compensation system, risk management and the selection of management. The full board of directors has therefore clearly failed. As a result of the poor management, Inrate has refused to discharge the board members for years. It would be interesting to gain insight into the minutes of the board meetings.
The compensation policy should ensure that the interests of management and shareholders are aligned. The incentive system was − as in many banks − extremely complex and despite transparency, it was not possible to conclusively determine how performance was related to pay. There were too many targets, which were also adjusted from year to year. The fact that the Board of Directors and the management itself were not entirely comfortable with this was reflected in the fact that bonus payments were very often «voluntarily» waived, and agenda items were adjusted or withdrawn shortly before general meetings. For years, Inrate rejected compensation agenda items (including the election of committee members). The compensation policy did not work.
Shareholders, for their part, have three basic options with their holdings: They can sell their shares (exit), they can try to influence management through voting or engagement (voice), or they can put their trust in management (loyalty). In the case of Credit Suisse, the decline in value speaks volumes. Many shareholders have moved away over the years. Some influential shareholders − for whatever reason − have supported management. The «voice» option has not fulfilled its unfolding. Except for this year (when it was too late), the majority of board proposals were waved through.
Last, the framework of corporate governance of banks is narrowed by regulations. FINMA (supervisor of the Swiss financial market) has an influence on the composition (e.g., qualification of members) and organization of the board of directors (e.g., formation of committees). In exchanges, we often hear versus our view that the scope is limited and that yes, they meet the regulatory requirements. The limits of regulation were also pointed out in this case.
