Board to Death: How Busy Directors Could Cause the Next Financial Crisis

Abstract

This article argues that the directors of the United States’ largest financial institutions are too busy to execute their governance roles effectively. Most financial institution directors serve on the board of at least one other company, and many directors also hold full-time executive positions. These outside commitments provide important learning and networking opportunities that can enhance a director’s effectiveness. Outside commitments, however, might also limit the time that a director spends assessing the firm’s strategy and risk or contribute to cognitive overload. Overcommitted directors, therefore, might consciously or subconsciously shirk their advising and monitoring responsibilities.

This article contends that the drawbacks of director busyness are especially severe for large, complex financial institutions because of the unique governance demands imposed on their boards and the systemic externalities of poor financial institution governance. Through a series of case studies—including JPMorgan’s London Whale trades and Wells Fargo’s fraudulent account scandal—the article explores how director overcommitment inhibits oversight of management, increases the risk of firm failure, and could cause the next financial crisis.