European bank boards, it turns out, are a lot different than in the U.S. A study earlier this year by the English bank consultancy Nestor Advisors compared nine of the largest European banks with their nine counterparts in the U.S. (e.g. Banco Santander versus U.S. Bancorp and Wells Fargo & Company). Here is what the firm found:
- U.S bank boards tend to have older members. The median age is 63 compared to 59 on the European boards.
- U.S. bank boards have fewer designated financial experts than European boards. The difference is 30 percent of board members on European banks versus 15 percent in the U.S.
- Six out the largest nine U.S. banks have chairmen who also serve as the bank’s CEO, compared to only two of their European counterparts (BBVA and Société Générale).
- U.S. non-executive directors are more often senior executives at other institutions than in Europe. The median number of non-executive directors with outside senior-level jobs is five in the U.S. versus three in Europe.
- U.S. bank boards pay their directors with more stock options and less cash than European boards.
By reading the report, you could almost conclude that European banks do a better job following best practices in corporate governance than U.S. bank boards.
Paying stock options could encourage more risk taking, the firm notes. Financial experts might be better qualified to challenge management on matters than impact the bank. Directors who are busy with outside jobs have less time for the bank’s business, presumably.
However, the report notes that large U.S. bank boards tend to be smaller than European bank boards. (The median is 13 directors in the U.S. versus 16 in Europe.) That can encourage more cohesiveness and ability to get work done. U.S. banks tend to have fewer executives and more non-executive directors on the board than European banks. (The median U.S. big bank has 85 percent non-executive directors versus 69 percent for big European banks).
Whether or not these significant differences in board structure translated into any meaningful value for shareholders, or meant European banks avoided the financial crisis better than American banks is another question. (Interestingly, one of the U.S. banks in the study, Goldman Sachs, previously was an investment bank and wasn’t even regulated as a bank before the financial crisis).
Europe is still embroiled in its own problems with an overheated housing market, just like the United States. The Spanish bank bailout fund alone has committed the equivalent of $14 billion in today’s U.S. dollars to recapitalize banks there.
Europe hasn’t recovered yet from its financial hangover, and neither has the United States.