One of the speakers at a recent educational clinic on corporate governance and ethics organised by FinanceMalta made reference to a statement which, to my mind, highlights the importance of good corporate governance.

Bankers’ greed will always exist because it drives banks to profitability. It is unchecked greed that has devastating effects.

Isn’t this what good corporate governance is all about? Good corporate governance keeps greed in check. It seeks effective monitoring and reporting procedures; it obliges directors to be sufficiently informed to take decisions in the best interest of the company and to ensure that a company presents a true picture of its state of affairs to investors, stakeholders and the general public.

Good corporate governance is not only about ensuring that proper systems are in place for individuals down the line to report fully and faithfully to their superiors. It is also about those superiors, the directors, carrying out their duties professionally by complying with strict codes of conduct, making the necessary enquiries, applying their minds to the matters in issue and diligently supervising the company’s performance.

The recent financial crisis has highlighted the drastic consequences of corporate governance failures.

Have we, however, learnt our lesson?

The 2012 JPMorgan Chase London Whale scandal is a perfect example of repetitive breaches of cardinal corporate governance rules. The Olympus scandal in 2011 and the settlement of a $1.9 billion fine by HSBC following accusations it transferred funds from Mexican drug cartels and on behalf of sanctioned nations are both clear examples of corporate governance failures due to insufficient corporate governance structures.

Despite the stringent regulations and corporate governance codes put into place, corporate governance failures continue to occur. Hefty fines are imposed; however corporates are increasingly building these into their balance sheets.

This defeats the purpose of corporate governance. It is for this reason that the message should be that it is easier to comply with good corporate governance practices rather than ignore them.

This article appeared first as a blog post on on 30 September 2013.