Was the absence of this protection part of the problem at J.P. Morgan?
 
While warning that it is far too early to tell, Van der Heyden thinks that this is a distinct possibility and that Dimon, as other US Chairman/CEOs, may indeed have consolidated too much power: "I have been arguing for a long time – with little success – that for large US listed companies the separation between CEO and Chairman is a good control, and represents good protection of shareholder value, and should not really be a big issue for executives, unless they are truly power hungry." Van der Heyden asserts further that "It contributes to constrain 'strong leaders' from taking excessive risks. There still is a dominant view in the US that executives should police themselves, and that the rest should be left for shareholders to decide. But good governance is about protecting shareholders from value destruction before it happens by questioning senior execs more and challenging them more forcefully on some assumptions. That is not yet an accepted idea in the US."
 
"In a corporate structure like J.P. Morgan," Van der Heyden further observes, "The business units (like trading) are governed largely by the corporate management. It does seem that in this instance the corporate management did not govern the trading unit sufficiently. That is a corporate management issue. The governance question is whether the J.P. Morgan corporate board would have seen. This is debatable but what is not debatable is that effective governance at the J.P. Morgan board level could only have increased the chances that poor corporate practice would have been (more quickly) detected."
 
If boards are to function as a bulwark against management errors then how they are chosen becomes a critical question. "Traditionally boards were often like exclusive gentlemen's clubs," says Meynell. "When you got to be a non-executive director, you were almost beyond feedback." So the failure of corporate governance that brought on the fiscal crisis should not have been a surprise. "Some boards were staffed with individuals who might have had great branding understanding or were consumer specialists, but had no concept of how to read a balance sheet of a big financial services organisation."
 
Assessment techniques
 
To reduce the risk of discovering a board member's failings too late, Russell Reynolds has developed specific assessment techniques. Says Sanglé-Ferrière, "We first interview many people who have worked with the individuals so we can understand their style and how they relate. Sometimes we use psychometric tests to better understand how they behave in stressful situations. They are there to manage crises - the ultimate test for a board member."
 
But even before evaluating the personality profile of a candidate, a recruiter needs to make sure the candidate has the requisite technical knowledge and work experience. Says Meynell, "There is a set of learning around governance, around accounting, around CEO succession, around processes that can be very valuably taught."