Corporate Governance and Access to Finance - ESBG

The uniform financial regulation of banks and savings banks and theauthorisation of geographical expansion in the late 1980s fostered,however, an increasing focus of their commercial activity on theprofitability objectives, whereas the social orientation is reached throughthe abovementioned out-of-balance community welfare activities andprojects (financed through the allocation of profits to social, cultural andenvironmental projects - Obra Social) and their business model.Corporate GovernanceThe absence of owners in the savings banks explains why they are subjectto extremely detailed regulation by the regional governments, especiallyin the areas related to governing bodies and their decision makingprocesses. This strong relation between savings banks and the regionalgovernments allows them to play an important role in the economic andsocial activities of their geographic areas. Their proximity to the economicagents and their knowledge of their financial and social needs facilitatethe orientation of the Obra Social towards the projects most importantfor the community (see Guindos et al, 2009).However, this close link with regional governments has other implications.The risk of political interference in the management of savings banksneeds to be countered by effective corporate governance practices.A plurality of stakeholders is represented in the governing bodies ofsavings banks (General Assembly, Board of Directors and ControlCommission): depositors, staff, municipalities, regional governments, thefounding entities and other community representatives (such aseducational, social and professional associations). Most of the savingsbanks’ charters establish an identical distribution in the Board of Directorsand the General Assembly, following four general principles for thegoverning bodies: diversified participation, balanced assignation of powers,no permission for majority public participation and independence.This diversity allows for the alignment of the institution’s financialobjectives (profitability) and other stakeholders’ aspirations (positivesocial impact). Compliance with the institutional mission of the savingsbanks, worded as “the creation for social and economic wealth, the fightagainst social and economic exclusion and the generation of economicactivity”, has been somehow translated into obtaining a sufficientfinancial profit that allows for the channelling of funds to the Obra Social.139