Appendix to the Volume: Questions for Further Research

The articles in this volume analyze the role of corporate culture and governance in the banking industry. The authors take a variety of approaches to the topic, summarizing and synthesizing the literature, providing case studies to illustrate key issues, and developing a framework for understanding the importance of culture and governance to risk management and financial stability. Numerous questions remain, however. Many are asked in the articles themselves, while additional areas of inquiry are detailed below.A prerequisite to establishing an effective culture and proper governance in financial firms is the ability to identify and explain weaknesses in the structure and behavior of organizations. To conduct such an assessment, a two-pronged approach is essential. Purely data-driven analysis can help us distinguish between competing causal models, but qualitative analysis can stretch the boundary of possible explanations. Therefore, instead of limiting research to the analysis of large data sets, I advocate qualitative research that would explore the relative importance of the right outcome versus the right process-whether knowing what is done (the outcome) is ultimately as important as understanding how and why it is done (the process). If we don't understand the process, there can be no learning, which hinders our ability to avoid future crises. Further, I recommend research into directors' understanding of governance in relation to their own role, as well as the ways in which their understanding evolved as a result of their unique experiences at the helm of institutions during the crisis. Still, like quantitative analysis, qualitative research tells only half the story; it can shed light on the unknown-illuminating what we didn't know we didn't know-but it cannot test hypotheses. Therefore, it is important to draw upon the strengths of both approaches for a complementary combination of exploration and analysis.Governance Questions1. How can more detailed governance proxies and the inclusion of private banks in our research add to our knowledge of governance and our ability as regulators to spot dysfunctional firms?2. How are board and governance structures different for public and private banks?3. How do governance structures differ across legal categories of incorporation (for example, S- and C-corporations or mutual holding companies)?4. How well do proxies for S- and C-corporations predict failure? Do they have more or less explanatory power over time? And across institutions?5. What drives changes in governance structure over time? What are the implications of these changes for the performance and risk appetites of firms?6. How closely do regulators' assumptions about the role of directors track with what is actually reported by directors?7. According to the law, the boards of banking firms are shareholders' first line of defense. Is this expectation realistic, particularly for financial firms? How can board oversight be improved?8. An important channel in governance is shareholder activism. Why is there so little activism in the banking industry? Is activism desirable even if it produces asset volatility and instability in management? If so, how might activism be encouraged?9. If activism is so weak, shouldn't the punishments for abuse be imposed on management rather than on the firm (stockholders)? If so, should we worry about the labor market for management?10. Is there a role for creditor activism in the banking sector-for example, with the introduction of bail-in-able debt? Should creditor activism be encouraged?11. It has been suggested that corporations focus on the short term in response to exogenous forces such as pressure by institutional investors. How should banks respond to these kinds of external demands as their governance is shaped by market forces (as well as supervisory guidelines)?12. Some observers argue that banks should focus on long-term value rather than short-term returns. …