Corporate governance : where do Tenth District community banks stand?

Troubles at publicly traded companies have led to the passage of recently enacted laws that add more rigor and formality to the corporate governance process. Most of these reform proposals and new laws focus on protecting investors in publicly traded firms. Relatively few Tenth District community banks, however, are publicly traded or are subject to new laws that would require them to change their corporate governance practices. Indeed, many are small in asset size, family-owned, closely held, and owner-managed. Given these characteristics, the governance process at community banks tends to be less formal and structured than requirements for publicly traded companies. What then has been the impact of corporate governance reform on community banks? Have community banks perceived benefits from the practices recommended by proponents of a more formal governance process? Although not required to do so, have community banks adopted any of the practices required of publicly traded companies? To answer these questions, the analysis in this article used information obtained from 26 governance questions included in the 2004 Tenth District Community Bank Survey. These questions dealt with matters that receive attention by good governance proponents, including board size, composition, committee structure, compensation, succession planning, director assessments, and other governance matters. Because ownership structure and size can influence the governance process, the analysis divided the survey data by family- and non-family-ownership, and within these ownership categories smaller and larger banks (assets less than $150 million, assets greater than $150 million). The conclusions drawn from the analysis are that Tenth District community banks have adopted many principles advocated by strong governance proponents. However, larger and more complex organizations are more likely to have adopted recommended governance principles. Further, non-family-owned organizations, regardless of size, proportionately engage in more of recommended practices than do family-owned organizations.