The resignation under duress of the CEO of Wells Fargo, after being pummeled in a Congressional hearing, raises a fundamental question: how can corporate boards hold management accountable for performance problems? One trendy answer from several governance mavens — limit the terms of independent directors so they do not become unduly deferential to the CEO.
The most typical limit on independent directors is mandatory retirement at age 72. This is the tenure limit for the Wells Fargo board. It is a significant limit because most directors do not join large company boards until age 60.
The world we live in asks us to make an abundance of financial decisions every day. These range from the inane, such as whether to risk a parking ticket when you stop for one minute to drop off your dry-cleaning; to the highly complex, such as which funds and investment products to pick for your retirement savings.
All of these decisions require risk-return tradeoffs. Unfortunately, while people have many opportunities in life to perfect their strategy concerning parking tickets, the same is not true for the complex and all-important decisions of how to invest retirement savings. By the time you learn whether a retirement strategy was the right choice, it is usually too late to change it.
Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy
From MIT Golub Center for Finance and Policy
As the keynote speaker at a recent conference of the International Consortium on Government Financial Management held in Washington DC, I had the opportunity to discuss with representatives from over 40 countries one of the primary challenges facing governments around the world – citizen engagement.
My remarks emphasized that recent populist movements should be a wake up call to everyone involved in government – including those in the budgeting and finance communities – on the need to turn citizen cynicism into engagement and buy-in.
The growing availability of technology and data should be enabling a highly informed citizenry (i.e., voters) armed with actionable information. Moving beyond tired factory-like mindsets where government financial staff spend their days grinding out reports, preparing audit remediation plans and manually executing budgets, a modern approach enables technology to drive iterative, customer-focused engagement and creates and marshals electronic resources.
A high-stakes competition is underway between traditional financial services institutions and disruptive FinTech startups.
The Economist reports that more than $25 billion has been invested in financial technology — FinTech — in the last five years, with 4,000 firms challenging banks in just about every product line. As financial services comprise about $1.2 trillion of U.S. GDP, increased levels of investment are likely.
Big banks have the advantage in this fight — at the moment. These institutions have well-earned reputations for safety and security. They benefit from strong, multi-generational customer relationships, have considerable brand equity, and offer myriad financial products and services.
Except well-funded, agile FinTech startups including SoFi, Billguard, Square, Wealthfront, Venmo and Neighborly are innovating and nibbling away at banks’ market share. They’re doing this by offering custom solutions for everything from student-loan refinancing and payment processing to lending and facilitating neighborhood investment.
Not surprisingly, at least some people at the Securities and Exchange Commission have reacted negatively — this is stepping onto their turf, after all. And the lobbyists are, naturally, out in full force.
But with sufficient White House willpower, the administration can see this through. What is needed is a change in the rules set by the Department of Labor, which has jurisdiction over retirement-related issues.
No doubt industry defenders will claim that current practices benefit small investors — a point disputed directly by the CEA. The broader and more interesting question is: Where are the statesmen in the financial industry? Where are the leaders who push for a race to the top, by better serving their clients’ best interests?