Flaws in Banking Governance‪.‬

I. INTRODUCTION Separation between ownership and control in business organisations by way of shares underlies the emergence of the concept of governance. According to agency theory, as defined by Jensen and Meckling (1976), this separation creates a potential problem of conflict of interest, notably between the shareholders and executives. The more ownership is divided between a large numbers of shareholders, the more the executives risk running the firm in their own interests. In effect, executives have different temporal objectives and horizons to those of the shareholders, and have privileged access to information that they can benefit from by steering the organisation's management in line with their own personal goals. Furthermore, executives may choose certain investments over others, depending on their preferences and the level of risk. (Charreaux, 1991). Thus, implementing effective governance mechanisms should lead to reduced agency conflict costs, and ensure the alignment of interests between shareholders and executives, consequently maximising shareholder wealth. (1) From this perspective, business organisation governance may be considered as "all the organisational and institutional mechanisms (including laws) that define the executives' room for manoeuvre and influence their decision-making" (Charreaux, 1997).