Pictures : Fat Cats, nickname to greedy directors that weren't governed effectively
-applicable to P1 (ACCA)
My Blog's 100th POST! Time flies. Experience increases. Expertise sharpens. These bound to happen, as lecturers or students alike when you do research and explain your analysis. I must say, more than 12 years in lecturing profession has been enriching in knowledge and enjoyable in teaching/guiding my students to ACCA SUCCESS.
Let's see the article below extracted from Economists.com. Read it and see what recommendations you can forward to improve the Corporate Governance. The bankers - fat cats have been notorious in taking 50% of accumalated profits past 10 years and leaving 50% for its owners. When the finance sector collapsed, causing the destruction of billions of shareholders' wealth, these fat cats Directors cooly walked away unscathed!
The governmments namely UK & USA scrambled to pump in billions of dollars aid to prop up the banks. As a side note, Dr. Mahathir has been critical of these, as he reasoned that taxpayers money should be used to help the victims namely customers that are too highly geared, and not the very people/bankers who caused the collapse.
This bankers came back and happily declare unashamely exorbitant amount of remuneration. City of London's bonus has increased 50% to £6 billion in 2009!
In other words, shareholders take the risks and if there are profits, we (bankers) take, if Losses then you take it mentality is pervasive. Read the article below and think of the question:
How can the corporate governance on the remuneration system be improved? (8 marks)
It needs more than indignation to put brakes on bankers’ pay
LORD MYNERS, the City minister, is allegedly worth £30m ($47m). He is an unlikely tribune of the people. Yet he has been sounding off, more vociferously than his colleagues, about “unacceptable” pay deals for bankers. Derivatives traders are not footballers with unique talents and “should not be paid as though they are”, he said last month. More recently he has railed against “market failure”, accusing big clients of investment banks of not challenging the fees and margins they are charged. The crisis does not seem to have affected the way bankers are rewarded. Lack of transparency makes them seem the more villainous. “The nation is angry about this. I’m angry,” says Lord Myners.
But such attempts at moral suasion are not working, and those in authority seem reluctant to do more. “We are not an incomes regulator,” says Hector Sants, chief executive of the Financial Services Authority (FSA). The watchdog’s only sanction is to demand more regulatory capital from those banks whose pay policies appear to be putting their firms at greater risk.
The Treasury could influence matters at RBS and Lloyds Banking Group, two big banks in which it has substantial shareholdings, but is reluctant to micromanage. There was not a murmur when RBS hired a head trader for a rumoured £7m in total. The government worries that any attack on bankers’ pay could drive financiers offshore, depriving the exchequer of much revenue. City bonuses, which dropped from £10 billion in 2007 to £4 billion in 2008, could bounce back to £6 billion this year, says the Centre for Economic and Business Research (CEBR), a consultancy.
They mirror the health of a financial-services sector that in the good times brought in up to £67 billion in annual tax revenues, estimates PwC, an accounting firm. This fiscal year the figure could drop to £39 billion, says Douglas McWilliams at the CEBR, although banks’ recently buoyant business may increase it. A windfall tax on profits, discussed by both government and opposition, might put any recovery at risk. So could the slightly softer option of preventing banks from offsetting past losses against future tax bills.
The reluctance to bash bankers’ bonuses stems from recognition that wholesale finance is a global business. Bankers are highly mobile, says Marcus Agius, chairman of Barclays. He argues that banks in Britain must be free to pay as much as those elsewhere, but says he is “agnostic” about what that level should be.
National and international proposals to reform pay at regulated financial firms are similarly agnostic. They mostly do not spell out how much public disclosure there should be of big pay packages, other than those for board members. An exception is the communiqué from the Group of 20 (G20) big countries in September, which requires a detailed breakdown of the remuneration of “employees whose actions have a material impact on the risk exposure of the firm”. Yet that measure is unlikely to be implemented, even though the big British banks and the London-based operations of global investment banks have agreed to it.
The FSA, for its part, is not bothered about public disclosure as long as it has the information itself. Sir David Walker, a former central banker charged with an official review of bank-governance practices, has suggested that bands of remuneration for heavy hitters outside the boardroom be disclosed. It seems that banks, in the absence of much more than appeals to their better nature, will be setting their own benchmarks as and when they please. Barclays began a review of its remuneration policies in 2008. It remains unfinished.
Source: www.economist.com, 2009
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