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Inside or outside control of banks? Evidence from the composition of supervisory boards

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Abstract

This paper examines the composition of supervisory boards of 41 large German banks in 1999–2010. We find that the supervisory board structure reflects both outside control by major shareholders and inside control by other stakeholders. The largest group among non-employee board members is made up of bank managers. The high proportion of former executives and German board representation indicates significant inside control. The chairpersons of banks controlled by banks are less likely to be former executives of the same bank than are the chairpersons of banks controlled by non-banks. Over time, representation of industrial and insurance companies on banks’ supervisory boards has decreased and the representation of banks and foreign shareholders has increased.

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Notes

  1. A ‘stakeholder’ is defined as “…any group or individual who can affect or is affected by the achievement of an organization’s purpose.” (Freeman 1984, p. 53). This includes shareholders, creditors, employees, managers, customers, communities, the government, and others.

  2. Savings banks and credit cooperatives are not included because they have different legal forms and agency conflicts.

  3. This is in contrast to the Anglo-Saxon literature on unitary boards, where a director is considered an outsider if he or she is a non-executive director of the same firm.

  4. Canada, the US, the UK, Spain, France, and Italy all have one-tier board systems (De Andres and Vallelado 2008, p. 2572).

  5. Note that we refer mainly to 2009 in the descriptive statistics and corresponding figures because the number of observations drops significantly for 2010. This is due to the fact that not all annual reports were published and some sample banks merged or were dissolved.

  6. Windolf (2002) found similar results for large German companies, where public officers held 7.4 % and university professors held 3.7 % of the supervisory board seats.

  7. The 100 largest companies (measured by value added) included only 9 banks in 2004, 2006 and 2010, and 8 banks in 2008. Insurance companies were even less represented, with 8 companies in 2004 under the top 100 largest companies, and only 4 in 2010 (Monopolkommission 2008, p. 153; Monopolkommission 2012, p. 128).

  8. For a detailed description of variables see Table 1.

  9. The variable TAX is excluded in the firm fixed effects regression because of its time-invariant nature.

  10. Note that we do not include firm dummies in the reported Tobit regressions as they would be biased and inconsistent.

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Authors and Affiliations

  1. Department of Economics, University of Rostock, Ulmenstrasse 69, 18057, Rostock, Germany

    Kathrin Johansen, Saskia Laser & Doris Neuberger

  2. IFF, Hamburg, Germany

    Doris Neuberger

  3. UniCredit S.p.A., Via San Protaso, 3, 20121, Milan, Italy

    Ettore Andreani

Authors
  1. Kathrin Johansen
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Correspondence to Doris Neuberger.

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Appendix

Appendix

See Tables in appendix 7, 8, 9.

Table 7 Presence of industrial companies, banks, insurance companies, and public officers on bank boards (sensitivity analysis)
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Table 8 Presence of university professors, self-employed, and managers of trade associations on bank boards (sensitivity analysis)
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Table 9 Presence of German versus foreign citizens on bank boards and influence of major shareholdings on the number of former executives on the supervisory board (sensitivity analysis)
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Johansen, K., Laser, S., Neuberger, D. et al. Inside or outside control of banks? Evidence from the composition of supervisory boards. Eur J Law Econ 43, 31–58 (2017). https://doi.org/10.1007/s10657-014-9463-y

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