RESEARCH NOTE

Banking Governance and Financial Crisis:The Case of French Market

Christiane Bughin & Alain Finet & Carole Monaco

Published online: 11 January 2013# International Atlantic Economic Society 2013

The systematic crises faced by the banking system in recent years were veryseldom analyzed under the Corporate Governance perspective. Corporate Gover-nance takes into account various mechanisms aimed at aligning decisions madeby leaders with Shareholders’ interests (Anglo-Saxon vision) or, more largely, tothe Stakeholders interests (European vision). Shareholders tend to be the mostprotected stakeholders, and they receive the most attention (perhaps because thegovernance codes were drafted by authorities more naturally directed towards theshareholders’ interests).

Whereas the Corporate Governance basically considers a spectrum of internal andexternal mechanisms (control by the subordinate colleagues, financial incentives,goods and services markets, labor market, risk of takeover, etc.), it is very oftenreduced to the manner with which the Boards of Directors function by consideringcriteria based on the concept of independence of the administrators, size of the controlcommittees, the possible presence of associated committees, or on the scission of thefunctions of the CEO and Chairman. Consequently, the Board of Directors becomesthe main mechanism in governance and control of companies. This mechanism canbe easily analyzed, whereas the effects of the other mechanisms are more difficult tolocate and quantify, as far as the objective was to create reference tools towarddestination and easier comprehension.

If, under the effect of the American economic circles, there was a promulgation ofthe codes of governance in the 2000s in Europe, they were largely influenced by thediktat of the banking and financial environment. This is because the problems ofgovernance were then confined in the field of the companies of the Technology-Media-Telecom sector. We assume that the regulations made for the companies hadonly little applicability for the banking environment (representatives are being prin-cipal instigators of codes). They led to deficiencies of control and decision makingwhich negatively impacted different kinds of stakeholders.

Int Adv Econ Res (2013) 19:75–76DOI 10.1007/s11294-012-9391-y

C. Bughin (*) :A. Finet : C. MonacoUniversity of Mons, Mons, Belgiume-mail: christiane.bughin@umons.ac.be

In this paper, we focus on the Boards of Directors, and more specifically oncharacteristics of the administrators, who are supposed to have a control function ofthe banking activities. We study the French market of quoted banks, as it is charac-terized by a significant number of banking institutions whose bankruptcy could causesystemic effects on the real economy. It is thus necessary to be attentive to the controlmechanisms within these institutions. More specifically, we focus on the three biggerbanking and financial institutions in the CAC 40 (Euronext Paris Stock Index). Thesethree institutions are BNP/Paribas, Société Générale, and AXA, which experiencednumerous difficulties since the beginning of the banking crisis, negatively impactingtheir stock-exchange valuation and their real performance.

We consider that there are common characteristics between the administrators,which can lead to bias in the practice of their function. So, our objective is to realize acartography of administrators of these companies to bring to light the dominantvariables which can characterize them. In summary, we examine the followingcharacteristics: age, time within the company, sex, training, dependence, number ofrelations, and number of companies of the CAC 40, within which the director wouldalso be present. At the methodological level and according to the objective to realize acartographic analysis of the directors of the studied companies, we apply the meth-odology of Principal Component Analysis (PCA). This methodology is a method ofdata analysis that consists of transforming correlated variables to new uncorrelatedvariables. These new variables are named main components. PCA allows the limitingof information to a number of components more limited than the initial number ofvariables.

Our results show that two variables are supposed to synthesize, at best, all theintroduced characteristics, (in this particular case the number of relations and the levelof training). This observation tends to demonstrate that the reference shareholders areinterested by the fact that companies are controlled by managers who have high skilllevels and who have developed links with a high number of external partners withinother economic entities, allowing them to strengthen their relational capital. Inparticular, it is clear from this analysis that some directors have relatively commonprofiles in terms of training and relations, but that others have characteristics whichgive them a dominant position within the control boards of the banking institutionsdue to their reputation and experience.

76 C. Bughin et al.