We recently saw some of the effects of a lack of board involvement in compliance oversight. The situation involved the UK bank Standard Chartered, which is licensed in New York state and subject to oversight by the Department of Financial Services (DFS).
Last week, Standard Chartered reached a settlement with the DFS for a $340 million fine related to violations in its business dealings with Iranian banks, businesses and citizens. The violations and settlement have raised some serious questions about the board.
The first area is in oversight.
In an article in the Financial Times entitled ‘StanChart speeds board shake-up’, reporters Sharlene Goff and David Oakley quote one top 20 shareholder who said, ‘A big issue is the failure of oversight, which means Standard Chartered needs to act over the make-up of the board. They may need to act quickly over this to prevent a loss of credibility.’ They also report that there was criticism directed at the chairman of the board, Sir John Peace, who, according to one investor, has ‘taken his eye off the ball’ because of other commitments.
A second area of criticism directed at the Standard Chartered board was the length of service of individual directors. One independent director has been on the board for over 11 years, and five more have racked up between seven and nine years of board service. The article cites the Higgs Guidance, which states that ‘a tenure of more than 10 years raises concerns about independence.’
In view of these developments, the following questions should be considered by all boards. First, do your board members have sufficient time allocated to performing the job of a director? Second, what are the tenures of your board members? And finally, when was the last time your board looked at either question?
