Where Was SVBs Board? A Critical Look at Governance Oversight Amid CRO Absence

Hey Medium Fam! Michael Barrick here again, and today, I want to talk about the critical role of a bank’s board of directors. These individuals provide oversight, guidance, and strategic direction. But one of the most crucial responsibilities of a board is to ensure that the company is managing risk appropriately. And in the banking industry, risk management is at the heart of everything they do.

This week we’ve learned something alarming regarding Silicon Valley Bank (SVB). In 2022, they didn’t have a Chief Risk Officer (CRO) for nearly nine months. That’s right, you heard me correctly. For almost three-quarters of the year, SVB had no one in the position of CRO, which is responsible for identifying and managing the bank’s risks.

Now, this raises some serious questions about the board’s effectiveness in providing governance oversight. They are responsible for ensuring that the bank has the appropriate personnel to manage risk effectively. And an absence of a CRO for an extended period is undoubtedly a failure of governance oversight.

The risk committee met 18 times in 2022, which suggests that the board was aware of the risk posed by not having a CRO and was taking steps to mitigate that risk. However, the fact remains that they allowed the bank to operate without a CRO for an extended period, which is an apparent failure of governance oversight.

This is a significant issue, especially for a bank like SVB, which serves the technology industry. The tech industry is inherently risky, and SVB’s clients include startups and emerging tech companies that are often highly leveraged and cash-constrained. In this context, having a CRO is crucial to identifying and managing the risks of serving these clients.

But the issues with SVB’s governance oversight don’t end there. CEO Greg Becker sold $3.6 million worth of company stock under a prearranged trading plan less than two weeks before the bank disclosed extensive losses. This has raised questions about his actions and the board’s overall governance oversight.

While prearranged trading plans like the one Becker used are legal and designed to prevent insider trading, critics argue they have significant loopholes, including a lack of mandatory cooling-off periods. This controversy adds to the scrutiny of the bank’s governance oversight, which failed to ensure that it had a CRO to oversee its risk management strategies.

This failure by SVB’s leadership underscores the importance of proper training and education for board members. That’s why I recommend the Board Director Institute, which provides training programs to help prevent board failures like those seen at SVB. These programs cover risk management, corporate governance, and ethics, giving board members the tools to make informed decisions and ensure the long-term success of the companies they oversee.

In conclusion, the absence of a CRO at SVB for an extended period is an apparent failure of governance oversight by the bank’s board of directors. It’s a reminder that effective governance oversight is critical to ensure banks manage risks appropriately and prevent unnecessary risks from materializing. The board of directors must take the responsibility seriously and ensure that the bank has the appropriate personnel and systems to manage risk effectively.

Do you think the board failed its shareholders, management team, and stakeholders?

Thanks for tuning in, and remember to always stay on top of your governance game.