Unskewed incentives: making governance work
Better board representation, an independent CRO, reformed compensation and safeguards around auditors and rating agencies will all help improve risk governance
Before and during the crisis of 2008, many bank managers, board members, auditors and rating agencies somehow managed to contribute, as if through a concerted effort, to one of the largest speculative bubbles in history. What did all these people have in common? Strong and well-aligned incentives.
Incentives matter – and not only to managers but to shareholders and directors too. When managers’ remuneration is mainly equity-based and shareholders are dispersed, both will favour a riskier
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