On bank governance: A modest proposal

I couldn’t help but be struck by the photo at the top of this article in today’s NYT, showing the CEO’s of the US’s 19 major banks lined up to await the results of Geithner’s ‘stress test’.
They are all men. Nearly all “white” men, though with a couple of ethnic South Asians there as well. Some preening, some looking slightly worried, all in white shirts and oozing opulence. (No surprise there.)
My proposal: Sack the lot of them. Sack all the male senior managers at each of these banks until you get to the highest-ranking women working there, and then make them into the CEOs, CFOs, COOs, etc.
There is more than enough evidence now out that shows that guys are just over-confident when it comes to assessing financial risk, and get more caught up than most women in risky behaviors that have a competitive edge. Just do a Google Scholar search on “gender risk finance”, and you’ll see the wealth of material that’s now available.
The article whose title I like best is “Boys Will be Boys: Gender, Overconfidence, and Common Stock Investment” (PDF here).
So why do the boards of these banks still consistently hire people with a Y chromosome into the top ranks of their management? Gosh, I’m still trying to figure that one out.
The results, though, have been clear: an excess of competitive risk-taking and an almost total disregard for the common good.

11 thoughts on “On bank governance: A modest proposal”

  1. Sheila Bair over at the FDIC is beavering away, taking over failed banks, cleaning them up, renegotiating mortgages, and generally cleaning up after the guys. But in the eyes of those making the big appointments, isn’t that what women are for?

  2. from FP:
    In financially-crippled Iceland, many women in finance and government feel they have to clean up the mess left by the country’s boys-club power elite. One former government official who, according to Der Spiegel, runs Iceland’s only still-successful investment firm, put it this way:
    “The crisis is man-made,” claims banker Halla, 40, who like all Icelanders, is only addressed by her first name. “It’s always the same guys,” she says. “Ninety-nine percent went to the same school, they drive the same cars, they wear the same suits and they have the same attitudes. They got us into this situation — and they had a lot of fun doing it,” she says. Halla criticizes a system that focuses “aggressively and indiscriminately” on the short-term maximization of profits, without any regard for losses, that is oriented on short-lived market prices and lucrative bonus payments. “It’s typical male behavior,” says Halla, who compares it to a “penis competition” — who has the biggest?
    Now Iceland’s women are rising to the top ranks — in politics, too — and they want to make everything better. Writer Hallgrimur Helgason says the new star is Johanna Sigurdardottir, 66, a Social Democrat, who had previously been known to most Icelanders as an honest and unimposing politician. “My time will come,” she once railed at her opponents angrily almost 20 years ago.
    Halla credits her success to bringing “female values into the financial world.”
    Sigurdardottir, currently prime minister in an appointed caretaker government, is widely expected to win big in an early election this weekend. She is not only her country’s first female prime minister, but the world’s first openly-lesbian head of state.

  3. I’ve got two words for this “analysis” about incorruptible, risk-averse women as CEO’s of major American corporations:
    “Carly Fiorina.”
    I’ve got two words for the supposition that high-powered “academic” black women placed in positions of political power will somehow bring truth, honesty, and competence to American government:
    “Condoleeza Rice.”
    And I’ve got a pair of two-words as proof positive of the old adage that “no woman has a worse enemy than her best friend,” namely:
    “Monica Lewinsky” and “Linda Tripp.”
    Oh, yes. And let us not forget those two words that will forever mark the recent, year-and-a-half-long ordeal during which arguably the most known, connected, and well-financed woman presidential candiate in American history lost to an upstart black male freshman senator just two years removed from the Illinois state legislature:
    “Hillary Clinton.”
    Of course, “men” (or at least some of them) have screwed things up royally for much of human history; but they have also written practically everything worth reading in World Literature, have made the vast preponderance of fundamental scientific discoveries, and even designed the most successful (at least to date) democratic Republic still extant on planet earth.
    Personally, I maintain that if women really crave absolute power enough to displace the men who currently wield it so badly, then at least one of them will have to invent a form of Single Spook animism sufficient to muddle the minds of humankind for millennia. As long as so many millions of women, worldwide, continue ritually kneeling to delusionally projected male “deities” instead of an all-avenging, gender-exclusive goddess of their own invention, then I see little for men to fear from them — at least in terms of the political and economic senses of the word “respect.”

  4. Sorry Helena, you missed it on this one. Forty years ago, when I was in law school, women were just beginning to enter the profession and become major players. My female classmates were almost all appalled by the male oriented, heartless, often vicious, way that law was generally practiced and vowed to feminize it and make it more human. Some actually tried. Those that I knew all ended up leaving the law and going on to other things (as many men did too). Those who stayed and became successful almost invariably became more aggressive, heartless, and driven than their male counterparts. They certainly did not feminize the profession, the profession masculinized them. Women now dominate the law, or at least are equal on most levels except for partnerships in major firms, but the pracice is not one whit better than it was forty years ago. Hillary is typical of the era. While I am sure that there are many differences between the way the different sexes approach to many issues, the culture overwhelms them to the point that talk of testosterone driven achievers is simply a misnomer. I have no doubt that women in banking were as greedy, vicious, and conniving as their male counterparts and were just waiting for their turn to rise to top level positions to do the same things – and enjoy the same perks and benefits. I wish you were right, but I believe it is bankers that are the problem, not just male bankers, and I point to the legal profession as my proof.

  5. Well, I understand the ‘Queen Bee’ syndrome, or one version of it… namely the phenom of the Maggie Thatchers, the Carly Fiorinas, the Condi Rices, or whoever– those women who are often the “first” to break this or that particular glass ceiling, and who to get where they did were forced to out-compete the boys, and often turn round and stomp on the fingers of women trying to climb up behind them.
    One problem with my proposal re the banks is that if done as I said, those are the type of women you’d probably end up with running the banks.
    But Michel Murry I completely object to the gross androcentrism of your reading of which gender historically had the greatest ‘achievements’ in world history. Look at the disparities in educational level and social expectations of the two sexes throughout that whole period, in most (but not all) parts of the world!
    There is also the non-trivial question of how we define what it is that constitutes an “achievement”. personally, I think one of the greatest achievements in the world is to raise functioning, healthy, happy, children– and to give them all the skills, including language skills, that enable them to create “World Literature”, constitutional documents (war plans, blueprints for atomic bombs), etc.
    Anyway, back to the banks. Jack, there’s much of truth in what you say. We do need to rethink he whole concept of banking and make the financial sector much more accountable both to the real economy and to the real people who live in and constitute it. Enough of “Liars’ Poker” as a model for anything!

  6. I notice that Michael didn’t mention his wife, his mother or Helena Cobban as examples of the women he despises in his misogynist rant, so there’s still hope.

  7. Let’s make no assumptions, really how can we?
    I for one, only expect people to be people and hope; as maybe others do, for ME nations to finally exist in peace.
    Gender politics and grievances, whether real or imagined, are simply not relevant in such a life or death geopolitical discussion.

  8. news report:
    The number of women CEOs leading the Fortune 500 companies has increased to 15 this year from 12 in 2008, while Pepsico’s India-born CEO Indra Nooyi continues to be on the list.
    The new list for 2009 includes three newcomers — Yahoo’s new CEO Carol Bartz, Ellen Kullman, who moved up to CEO post at DuPont in January and Laura Sen of BJ’s Wholesale club.
    The Fortune magazine in a separate section on Women CEOs in Fortune 500 companies stated that, “from health care, to food, to retail, to technology, these 15 women show what it takes to lead some of the nation’s biggest companies.”
    Fifteen out of 500? That’s pitiful because:
    A new university study has found profits are likely to rise under a female management team because women are more intuitive and can better suppress negative emotions.
    The study, conducted by the Centre for Neuro psychology at Melbourne’s Swinburne University, found women who had higher emotional intelligence and intuition were more likely to display good leadership traits.
    Emotional intelligence was defined as the ability to identify and manage emotions and includes suppressing negative emotions like frustration and fostering positive emotions.
    Nearly 11 million privately held companies are now majority-owned (50% stake or greater) by women, according to the Center for Women Business Research, based in Washington, D.C. That accounts for nearly half (47.7%) of all private companies in the United States. In addition, women-owned companies now generate $2.5 trillion in annual sales and employ 19 million people nationwide.
    Typically, women operate and manage those businesses in some significantly different ways than men do. Recent studies point out that while both male and female styles of leadership
    can be effective, “female” frequently has the edge.

  9. It really says much to the advantage of females that so few of them figure on lists of leading exploiters. There is nothing new about this: they were notably under represented among slavedrivers too. And, quite unregrettably, they trail in the chronicles of mass murderers too.
    The notion that the nature of the banking system would be significantly changed were there more woman usurers is a peculiar one for a Quaker to advance. After all, most of the great British banking houses, like the Breweries, were founded by Friends. And yet, for all their sincere devotion as individuals to what they conceived (often quite wrongly) to be humane causes, such as penal reform and abolitionism, the banks Barclays notably, despite the piety of their owners were… Well the story of those banks is a crucial part of the story of empire.

  10. Back to the problem: I just happened to pick up a back issue of Foreign Affairs today — from the Council on Foreign Relations. (good article therein by Tucker & Hendrickson on how the US lost legitimacy & why it matters.)
    The FA issue for December 2004 has a full back cover ad for AIG: with this question in big bold white on blue letters:
    Does your company unknowingly make risky investments?
    It then goes on to trumpet how AIG has “top financial strength” and has “triple-A long term debt ratings — the highest available.”
    Wow & Ouch come to mind.
    And does your company knowingly lie in its advertising? (can you say “mortgage-backed” derivatives?)

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