Finances and accounting

Corporate governance is very important for the performance of companies, especially if

this focuses on the financial sector. The lack of involvement by financial institutions in
improving corporate governance has been one of the major problems that has caused
the economic crisis. There are many problems that international institutions are
constantly investigating such as risk management, board of directors, remuneration
system or supervision among other.

The problems of corporate governance are being solved over time by the involvement of
international institutions such as the European Commission. After identifying the
problems, this paper will show the solutions that the international institutions are studying
to try to improve the corporate governance in financial sector. Finally, this work also will
empirically analyse the problem of the remuneration system that will be related with the
performance of the banks and the votes of the shareholders as a measure of support.

Author: Yeray Rodriguez Haro

Email: al285509@uji.es

Tutor: Idoya Ferrero Ferrero

Spain 2017
1- Introduction -------------------------------------------------------------------------------- 3 - 4

2- Evolution ----------------------------------------------------------------------------------- 5 - 8

3- Importance of the corporate governance in the banking system ----------- 8 - 10

4- Issues of the corporate governance as key of the financial crisis ---------- 10 - 16

5- Solutions to solve the problems ----------------------------------------------------- 16 - 22

6- Empirical analysis------------------------------------------------------------------------ 22 - 35

7- Conclusion -------------------------------------------------------------------------------- 35 - 36

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 1- Introduction

OECD defines corporate governance as: the procedures and processes according to
which an organisation is directed and controlled. Corporate governance establishes
guidelines about the responsibilities of the members of the company, these members
are the stakeholders, the board of directors and the managers (OECD, 2005).

Over the years, a series of problems and evasions in legislative terms have been
observed, these problems have adversely affected the countries in economic and social
fields, therefore, organizations have established a set of principles and standards that
companies must respect for the good functioning of the economy.

To analyse the progression of good corporate governance and how it has improved over
the years, this paper will mainly use as reference the OECD and the European
Commission of 2010, these elements will be supported by articles and independent
investigations with the objective of supporting the information.

To support the regulation of corporate governance, in 1999 the OECD established

principles regarding corporate governance, these principles have been evaluated as one
of the essential rules to maintaining a good financial system (OECD, 2004).

Although there was a progression in the regulation of corporate governance, this was
not enough to maintain a good financial system, so the OECD has been revising the
principles and modifying them around past problems. One of the major revisions came
in 2004, when the OECD improved the paper of the shareholders, stakeholder integration
and the transparency the companies. In 2015 the OECD collaborated with the G20 to
carry out the current review, which consists in giving more clarity to the previous
principles, counteracting new problems that have arisen and that principles are used in
both large and small companies (OECD, 2015).

Deloitte (2017) argued that after the great economic crisis, companies are more involved
in the realization of a good corporate governance, especially after the great crisis, listed
companies are focusing on showing transparency to boost these companies in the
market to generate wealth, supporting investors to have greater security in their
investments.

One of the most important points of the crisis that has been observed is the role financial
institution. If one bank bankruptcy, it can directly affect the bankruptcy of the other banks
by the domino effect. According to European Commission: this can lead to an immediate

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contraction of the credit and the start of an economic crisis due to lack of financing
(European Commission, 2010:4)

In addition, the European Commission (2010) argued that there is an interest conflict
between creditors and shareholders. On the one hand, shareholders want to obtain a
financial balance between profit-risk, it means that shareholders want a rise in the share
prices and better profit in short term, however, shareholders are not interested in an
excessively low risk. On the other hand, creditors want a low risk level because to obtain
their repayments at the expiration of the investment.

Another conflict of interest that will play a key role in this work is regarding the
shareholders and the board of directors, it will show if there is an alignment between the
remunerations system of the board of directors of the banks and the degree of
acceptability of the shareholders regarding the remuneration system, analysing the votes
that are shown in the official reports of corporate governance of each Spanish banks of
the IBEX35.

This paper aims to evaluate problems and solutions of the corporate governance,
focusing on the banks from Spain before and after the 2008 economic crisis, comparing
how the situation has changed from the stage of the crisis to the current recovery
situation. Also this work will explore empirically the remuneration system of the banks
listed in IBEX35 based in the remuneration of directors, the performance of each bank
and the degree of acceptability of shareholders.

This paper contains five points that support to understand the changes made that favour
investors to have more confidence in the markets. The first section will examine the
evolution of the corporate governance since 1968 (better boost of the corporate
governance) until 2015 (the last report of the OECD). The second section will examine
the importance of the corporate governance in the banking sector. The third section will
analyse the issues of the corporate governance as key of the great crisis, then the fourth
section is related with the solutions made to solve these problems. The last section will
empirically analyse about the compliance or non-compliance with the remuneration
measures of the OECD and the European Commission about corporate governance,
analysing if the banks of the IBEX35 changed the polity of remuneration system and
comparing it with the economic profitability and the votes of the shareholders regarding
remunerations system implanted by the banks between 2013 and 2015.

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 2- Evolution

Roldan and Caro (2015) argued that until corporate governance had a major impact on
the financial sector, the only regulatory rules in financial institutions were created in 1968,
this rule promoted incompatibilities and the maximum number of jobs in the board of
directors, however, the situation has improved over time, adopting numerous rules
regarding corporate governance in financial institutions.

Due to the great importance of the banks in the economy, in 1975 Basel committee was
created to supervise the banks at international level. It was necessary to promote a good
regulation in the financial system and support the good practices of the banks in order to
maintain a stable economic situation (Deloitte, 2011).

The Basel committee was insufficient to regulate the actions of the companies which in
the attempt to obtain greater profitability, these companies used methods to defraud the
state and manipulate the accounts to deceive the shareholders. These factors were
always arising from the legal loopholes that existed.

To reduce the risk regarding the bankruptcy of financial entities and increase the control
of the good management, Basel established and agreement about supervision of
banking branches. Basel published a guide to promote the good management of the
banks, to verify that the guide was fulfilled, Basel followed the control of the values
thought the regulatory agencies (Deloitte, 2011). This guide supported some entities,
however, there were many other entities that did not follow it.

Although corporate governance did not come to be known until 1990s, it did not mean
that there were not laws on transparency, an example of the transparency is that Spain
established the law of discipline and intervention of financial institutions since 1988, this
rule wanted to above all affect in mortgage loans. Also appeared the customer service
and claims services of the bank (Roldan and Caro, 2015). These measures served to
control in a small measure the fraud of some entities and support the shareholders.

In order to improve the micro and macro areas, corporate governance appeared in the
early 1990s, when it was necessary to promote transparency. For this, companies have
published their statutes and regulations, in addition, these companies have been
published the most relevant facts of each year, promoting the security of the
shareholders and increasing the investment (Herrero, 2015).

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Other laws and norms such of Cadbury report, law Sarbanes Oxley and OECD principles
were necessary to improve the corporate governance of the entities (Azkunaga and
others, 2010). Although there has been an evolution in corporate governance, this has
been insufficient to maintain an economic balance.

The Cadbury committee was created in 1991 because of the lack of investors confidence
in listed companies, especially the wallpaper group Coloroll and the Polly Peck
consortium. Once the committee began to work, two altercations occurred that produced
an alteration of the financial sector (the committee of the financial aspects of corporate
governance, 1992). The alterations caused the accelerations of the reports to be
prepared immediately to stop the bad practices of the companies.

The committee of the financial aspects of corporate governance (1992) argued that the
objectives of the Cadbury report were focused on the separation between the chairman
of the board and the chief executive, the board should be formed mainly by external
directors, remuneration committee must be composed especially with non-executive
directors and audit committee should be composed of at least three non-executive
directors.

To cover some aspects of corporate governance that were not covered, the OECD
implemented the principles of corporate governance in 1999. These principles are one
of the main systems of the financial stability forum and these principles have been
updated when weaknesses appeared (OECD, 2004). The objective of the OECD was
aimed to increase the transparency and the true financial situation of the entities.

Azkunaga and others (2010) argued that the globalization has been one of the most
important process that has influenced in the evolution of the corporate governance, it
means that there has been a boost of financial liberalization and growth in the
deregulation of the banking sector. These factors had a significant influence on the free
market.

On the one hand, this free market brought with it a process of financial impulse,
increasing the importance of investors and the financial resources managed. In addition,
these factors greatly influenced the ability to make decisions in financial institutions
where investors speculated (Azkunaga and others, 2010).

On the other hand, investors influenced the management of financial institutions,

however, this management was mainly aimed at maximizing the interest of shareholders.
As a result, it generated a problem because this maximization was directed at the short

6
term, negatively affecting the risk management through the securitization (Azkunaga and
others, 2010).

To support measures in transparency, the Sarbanes Oxley law was passed in 2002, the
objective of this law was the protection of investors against fraudulent acts. This law had
to be created from fraudulent acts reflected in the accounting of different corporations in
the year 2000 (Diaz, 2007), since the confident of the investors was being lost and this
directly affected the stability of the companies and the economic situation.

The two most important sections of the Sarbanes Oxley act are the sections 302 and
404, the first section consists that top management reviews and signs that the financial
statements reflect the true situation. The second section requires the establishment and
maintenance of adequate controls to protect the investors (Diaz, 2007).

The evolution of the good corporate governance has been accompanied by changes in
the board of directors, some of these changes have reflected the change of members of
the board of directors, seeking more professional workers (Deloitte, 2011). The
knowledge and experience of directors had to be more solid in order to avoid or be able
to solve financial failures that could lead to an economic crisis, however, these measures
have not been fully effective.

As time passes, OECD has been revising and modifying the principles of the corporate
governance. One of the most important reviews of OCDE principles was carried out in
2004 with the focus of ensuring the quality of the values, establishing a reference that
any company could follow to carry out a good corporate governance. This revision
wanted specially strengthen the transparency, the supervision of the board and the
benefit of the stakeholders (Mastrangelo, 2014).

Given the importance of the financial entities in the economy and the aspects that were
not covered in the guide published in 2006, Basel published the 14 values to improve
the corporate governance in some aspects that were ineffective. The objective of these
values was to support the financial entities with the structure of the corporate
governance, furthermore, Basel improved regulatory agencies to control that banks had
a good structure (Deloitte, 2011).

All of these changes and principles proposed by Basel were insufficient to prevent the
great crisis of 2008, when Spain had not regulation regarding on mortgages loans and
the control of risk from the construction sector was negative for reasons such as the little
experience and excess of confidence of the government.

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The international institutions are constantly analysing and modifying the documents in
order to improve the practices of the corporate governance. One of the latest
modifications are the principles of the OECD which was approved in Antalya summit in
2015 with G20 support, this revision was carried out by the problems that arose during
the financial crisis. OECD (2015) pointed that these principles concern both public and
private entities and attempt to reach unlisted companies. The main themes of the review
were both the role of the worker and stakeholders, as well as corruption, business ethics
and the environment.

3- The importance of the corporate governance in financial institutions.

Corporate governance is explained as the key that can lead to avoiding possible crises,
therefore, companies must always respect the laws that arise from past failures in
corporate governance that cause a problem in the economic system, especially by part
of the financial institutions.

Although this work pointed that the financial institutions have to respect the
recommendations provided by international institutions, these institutions should also
ensure that the financial institutions comply with the recommendations (COM, 2010),
therefore, although financial institutions have not been able to predict the risk of the
financial products sold that it would aggravate the crisis, international institutions did not
focus strictly on the supervision of the rating of financial products sold.

Good corporate governance is needed to protect the interest of investors and manage
risk that may adversely affect financial institutions. Lawteacher (2013) argued that small
investors do not have the ability to ensure that the information presented to the market
by companies is what the financial statements truly reflect, on the other hand, large
investors can obtain real information form companies because they have sufficient
incentives. It means that there is a great difference between small and large investors.

Over the years, international institutions have focused on researching and proposing
new recommendations and modifications of existing recommendations to improve the
corporate governance in financial institutions, especially after the financial crisis that has
affected significantly (CNMV, 2015). It is very important that listed companies, especially
banks must be properly managed and transparent. This promotes above all the security
and confidence of investors.

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Clearly, the objective of the regulatory agencies is to ensure the proper functioning of
corporate governance with the aim of increasing competitiveness, transparency and
confidence to attract national and non-national shareholders. In order to achieve the
stated objectives, financial institutions must carry out good internal control and properly
delegate responsibility (CNMV, 2015).

There were two factors that significantly affect the good corporate governance in the
banking sector. The first of them is the opacity, it means that shareholders and debt
holders have difficulties observing the risk assumed by banks, negatively affecting the
interest of the debt holders in the event of the bank going to bankruptcy (Lawteacher,
2013).

The other factor is the regulation, it means that banks assume levels of risk higher than
the levels required by government regulation, in addition, many countries seek to reduce
the capacity of shares sold abroad to avoid the accumulation of power of the bank or the
economy of the country in general (Lawteacher, 2013).

The objective of the regulation is to try to control the risk of the system and protect
depositors as much as possible. To control the risk of the system arises a conflict of
interest between shareholders and bondholders called moral hazard, this is information
that only have some people (in this case, shareholders), but others (bondholders) do not
have the same information (Lawteacher, 2013). Therefore, it is important to regulate the
transparency of information in order to all stakeholders have the same opportunities and
advantages.

Other important factor is the difference of conflict of interest between public and private
banks, clearly the conflict of interest in public banks is more intense. It makes that the
impact of corporate governance must be stricter, since the government exercises as
owner and regulator, making it difficult to control and support the principles on the legal
framework of corporate governance (Lawteacher, 2013). The European Commission
should improve the measures such as transparency, good auditing and controls to
prevent the corruption, improving the corporate governance.

In the case of India, a measure was made with sought to seek more qualified directors
to hold the position, in addition, another objective was the separation of the nation
president and the directors of the largest public banks, reducing the conflict of interests
and increasing the efficiency of the direction (Lawteacher, 2013).

It should be noted that each country has their own laws, being more difficult the study of
corporate governance. Schiehll and Martins (2016) pointed that the effectiveness of

9
corporate governance mechanisms are directly related to discretion which is determined
by three factors. The first factor is the individual attitude, the second factor is the
organization system and the last factor is the sector which operates the corporate
governance.

Clearly, the governance-country analysis is a very complicated analysis because there

are many factors that affect the corporate governance. The supervision of corporate
governance is directly proportional to the financial level of each country, therefore, it
affects the level of development of each country (Schiehll and Martins, 2016). It means
that the most developed countries tend to have more strict supervision.

4- Issues of the corporate governance as key of the financial crisis

The financial crisis of 2008 was the worst economic crisis since the great depression,
this crisis started in United States after de fall of the Lehman Brothers bank due to
subprime mortgages. In addition, the financial crisis of 2008 spread throughout the world,
affecting specially the development countries and leading to debt crisis.

From the great crisis of 2008, there is a loss of confidence for the society that was mainly
created by the problems of the corporate governance of the financial entities (COM,
2010). Good corporate governance should be able to eliminate mistrust on the part of
the society, especially investors, but there are a lot of problems regarding corporate
governance that makes financial institutions not enough stable.

To observe the problems in a more organized way, this section will be divided into four
subsections that will contain information regarding problems and impacts of risk
management, the board of directors, the remuneration system which will play a key role
in this work and other corporate governance weaknesses that also affect the corporate
governance.

4.1. Risk Management

The first important failure that financial institutions had in terms of corporate governance
was risk management, since the entities focused above all on the internal control in
obtaining financial information and the establishment of external controls, leaving aside
other characteristics that form risk management (OECD, 2009). It should be important to
focus on each aspect of risk management because an aspect that at first may be
irrelevant, it can become a major problem.

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Risk management is a very delicate aspect of corporate governance because there were
not benefits if there were not risks, however, investments with high risk capacities can
cause problems of shareholders, depositors and the economy as a whole (COM, 2010).
One of the causes of the 2008 financial crisis in Spain was the result of a poor
management of the risks, investing exhaustively in the construction sector.

The undue management of the risks was originated by risk assessment, these
evaluations were wrong because the models used for the risk-liquidity interaction were
inappropriate, this problem basically resided in the internal control of the entities without
focused on guidelines to the management of risks (COM, 2010). These errors led to the
overestimation of financial institutions to manage risks and the underestimation of capital
that entities should not waste.

Although there were several problems regarding to risk management, the most
outstanding problems were a very low risk prevention capacity, which was due to the
poor employee training around risk and the other problem was the lack of capacity to
authorize different risk management (COM, 2010).

On the one hand, the lack of knowledge about risk management stemmed from the lack
of experience for risk identification, this lack of experience not only covered the board of
directors with ineffective models and short time horizons, also shareholders with lack of
action (COM, 2010). It means that the shareholders should have been more active,
directly impacting supervisors to be stricter.

On the other hand, the lack of information regarding the risks has been a very important
problem which has favoured the state of financial crisis. The problem of inconsistent,
complex and untimely reports has affected the decision-making of the board of directors
(COM, 2010). The institutions were not able to act on deviations of risks levels by
following the financial growth of the bubble.

The lack of the experience in risk management has negatively affected the economic
situation, there are many sections of risk, which only pay special attention to the most
priority sections of these risks, leaving the other sections of risk not covered. The other
important failure is the reaction risk, this problem is due to the lack of information that
exists in real time, the technology regarding this problem has not evolved effectively and
all of this affects the financial products (COM, 2010).

These aspects are very important in the control of risk management because it is a priory
function in the financial entities. It means that any failure due to lack of experience or

11
bad reaction to management decisions can lead to a dire situation to the entities, in the
case of a public bank, this problem may create a crisis situation.

4.2. Board of directors

The second important problem is the board of directors, this point is very delicate
because it is very difficult to determinate the facts and judge the committee. OECD
(2009) argued that one study found that more than half of the directors had no experience
in major financial institutions in United States, in addition the directors retained important
positions such as executive.

In addition, the board composition has been one of the aspects that the European
Commission has evaluated since the great financial crisis. Given the complexity of the
banks, the board should has paid more attention to the communication of the information
(COM, 2010). This little importance to the board structure has been a factor to be taken
into account in the performance of the financial entities.

There is an issue in the optimization and use of financial information by the board of
directors, OECD (2009) stressed the risk models failed because there were flaws in the
technical assumption applied. In addition, the OECD value number 6 compliance
monitoring was not given enough importance, creating strong weakness in corporate
governance.

Besides that many of the executive directors did not have much experience, COM (2010)
pointed that a study showed that non-executive directors did not engage enough in
increasing the knowledge needed to assess and counter the risk of financial institutions.

It should be noted that the work of the non-executive director is very stressful because
the work that non-executive director has to present has a limited time to analyse the risks
of financial institutions (COM, 2010), therefore, the non-executive directors must have a
greater knowledge and experience.

On the one hand, the majority of non-executive directors were not able to perform
analysis about the decisions that were made in the board of directors (COM, 2010). This
point of view has highlighted as a weakness that influenced different financial institutions
and it was one of the causes of the financial crisis.

On the other hand, the search of a profile of the composition of the board of directors,
especially non-executive directors is predetermined (COM, 2010). It means that there is
a profile with a specific gender, age, studies and culture. The problem is that this profile
generates a unique way of thinking, directly affecting the decisions of the board.

12
In the case of Leman Brothers, a study found that forty percent of the banks directors
were over seventy-five years old, one of these directors had no knowledge of financial
matters (OECD, 2009). This fact is very relevant since it could has been one of the keys
to bankruptcy of the Leman Brothers bank, a clear error is that the system of revolving
doors has not yet been eliminated, which may cause another economic bankruptcy.

4.3. Remuneration System

The third important problem that this section is going to analyse and it will be very
relevant in this work is the remuneration system, this system has been very important
and it had a great impact in a macroeconomic way in the sensitivity of institutions. OECD
(2009) pointed that principle 6 establishes a balance between the remuneration of the
board of directors and long-term interests. The implementation of this system has not
been correct, as there has not been a good balance in the compensation-performance
relationship.

On the other hand, regarding remuneration system, there was a serious problem since
the compensation system should not be related to the long-term interest of shareholders,
this mean that long-term compensation should not only depend on income, it must
depend on the cost of capital (OECD, 2009).

Remuneration system is an important point that is being evaluated from the economic
crisis because the European Commission has been observed that there are weakness
in the remuneration decisions of the banks. The importance of this factor has led several
people to carry out studies of remuneration system which concluded with mismatches,
in addition, the recommendations of Basel regarding remuneration system have not been
applied in financial institutions (COM, 2010). This is related with the bad work of the
board of directors for failing to promote the long-term remuneration regarding to the
achievement of the objectives of the financial entities.

In order to know if the remuneration system is correct or it must be increased or reduced,

it must be focused on the working factor. If this is efficient, the board of directors should
favour the contracting and also increase the remuneration, however, if the working factor
is inefficient, executives are being hired or remunerated inadequately (Marcinkowska,
2014), affecting the creation of value and the non-fulfilment of the objectives of financial
institutions.

On the other hand, another factor that affects the remuneration system is the weakness
of the corporate governance mechanisms. It means that when the mechanisms are
weak, directors abuse the modification of the wages, increasing the salaries and

13
transferring the wealth of shareholders to wages of directors (Marcinkowska, 2014). This
is related with the supervision, which must ensure that the guidelines set by the
European Commission are met.

In addition, the remuneration system is also related with the risk-taking and the incorrect
alignment between short term benefits and long term objectives of the financial entities
(Marcinkowska, 2014), an example of this is when Spain was in the real estate bubble,
the managers wanted to have higher profits in short term, therefore, this led to grant high
credits related with real estate sector, the problem was that the directors did not have in
account the risks that this had in long term.

4.4. Other corporate governance weaknesses

This subsection will contain information about other issues that also affect corporate
governance such as the rating agency, regulatory framework, conflict of interest, the
application of the principles, shareholders, supervision and internal audit.

The first problem is the rating agency, there are companies dedicated to quantifying
financial risks, although from the financial crisis of 2008 the rating agencies were
harmed, these agencies continue to be very important because of the globalization,
securitizations and the expansion of international markets (OECD, 2009). These rating
systems help to obtain financial information about companies and financial products.

The rating agencies misused the rating by assigning high ratings on subprime debt, these
ratings were incorrect because rating agencies used inappropriate data and incorrect
models. Investors found that ratings agencies inappropriately rated some financial
products, therefore, investors lost confidence in these ratings (OECD, 2009).

The second problem is the regulatory framework, this is a set of statutes and regulations,
through the control it is necessary to supervise that these statutes and legal regulations
are fulfilled. This framework must be inserted inside the broader legal framework, which
interacts with all elements of the company and establish the rights and obligations (Pata,
2017).

In the case of Northern Rock (British bank), the supervision was no adequate because
the company did not have enough staff and the training was not quite good, so the
financial service authority declared that the British bank framework was not adequate to
assess the risk (OECD, 2009). Clearly, experience in the banking sector and financial
dates are key elements in the framework of any bank.

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The third problem that remains constant is the conflict of interests, it is a problem that
affects the whole company. The risk of the system, transactions, the structure of the
entities and the variety of financial products are the factors that affect the conflict of
interests, this problem can also occur between shareholders and the company (COM,
2010).

The fourth problem in corporate governance is the application of the principles by

financial institutions, the principles established by the OECD and Basel adjustments
established guidelines to avoid problems that would become in a possible financial crisis,
however, financial institutions did not know how to implement and control these principles
(COM, 2010).

The most common mistakes regarding application were, on the one hand, the complexity
of these principles, making difficult interpretation and practice. On the other hand, there
was a bad organization and control regarding the application of the principles by the
entities, finally, the lack of supervision and slight sanctions have meant that financial
institutions did not pay sufficient attention to compliance these principles (COM, 2010).

The fifth problem is related with the Shareholders, this problem has also negatively
affected the corporate governance, the log-term objectives of shareholders have
declined significantly as a result of the financial crisis, in addition, the beginning of the
importance in the financial sector has aggravated the situation since it has attracted new
shareholders which assume high level risk and seek short-term objectives (COM, 2010).
Currently, the long-term equity is something that the most shareholders do not acquire
because the risk is too high.

The factors that may indicate the distance between the interests of the new shareholders
and the entrepreneurs and the inactive participation of the shareholders are diversified
portfolios, investor costs, lack of participation in the control and complex information
(COM, 2010). These factors affect both financial institutions and corporate governance.

The sixth problem is the supervisory system, this system is very difficult to control and it
is a problem because the existence of large public funds are necessary to control them
with a well-managed financial system. The role of supervision consists in controlling the
solvency, performance and currently rules for financial entities. The supervision has been
improving over the years until 2016, when a guide was published with recommendations
to reduce doubtful loans, which are one of the biggest concerns at the moment (BDE,
2017).

15
The objective of the supervisory system is to measure and maintain an adequate level
of risk to each financial institution, however, in some cases supervisors have not
adequately managed the changing risk in the commercial and financial field. In addition,
international institutions do not cover all the activities of financial institutions, making it
difficult to manage risks and comply with the rules (COM, 2010).

The last problem that is related with the transparency and may be a factor to consider is
the internal audit, this department provides the financial information of the company in a
correct way. It means that the financial information reflects the true image of the
company. COM (2010) argued that the problem is that the internal audit is held by the
company, therefore, the information provided may not be the same as the true
information of the company.

5- Solutions to solve the problems

The European Commission presented several solutions to the problems sighted

previously. In addition, the European Commission seeks to continue improving the
practices of corporate governance in the financial sector, trying to finance companies
and individuals by financial entities. The purpose of this method is to reduce the impact
of the financial crisis.

In the same way as the section of the problems of the corporate governance, this section
will be divided into four subsections that will contain information about measures in order
to solve the problems of risk management, the board of directors, the remuneration
system which will play a key role in this work and other corporate governance
weaknesses that also affect the corporate governance.

4.1. Risk Management

The first important problem that the European Commission is trying to improve is risk
management. This is a complicated problem because it is one of the directly responsible
with the financial crisis. COM (2010) pointed that the committee is studying solutions
regarding to the level of the director authority of risk management and the system of
communication and information of risks.

To improve the level of authority of the risk management director, the European
Commission proposed to improve the position of this director, this means that the risk
management director has at least the same privileges as those of the financial director

16
and also the risk management director can directly report to the board of directors about
any relevant fact of risks (COM, 2010). This measure serves to reduce the loss of
information and increase the efficiency in the communication channels.

A solution proposed by the committee to improve the communication system for risk
management was to upgrade the information system. Information would arrive in less
time, furthermore, adding new computer programs, financial institutions could distribute
the different problems about the risk management in different hierarchies to manage
risks more effectively and efficiently (COM, 2010).

In addition, other solutions to reduce risk in financial institutions are the awareness about
the importance of properly managing risks and the reports about the quality of internal
control system of financial entities. The first measure can be achieved by analysing the
different financial products that financial entities want to sell. The second measure can
be achieved increasing the quality of the reports and making more controls (COM, 2010).

4.2. Board of directors

The second important problem that the European Commission is focusing to solve is the
board of directors, one of the possible solutions to improve this area is a balance between
independence and competence in that board of directors, to increase the competence of
the board is necessary to analyse and restructure the contracting policies, in addition, in
order to control management effectively is necessary an independent judgment of the
board members (COM, 2010).

COM (2010) argued that a possible solution to achieve the independence of board
members is to significantly reduce the conflict of interest between that board members
and the financial entities in general by investigating, applying and controlling conflict
management policies. A method to reduce such conflicts is to communicate with the
other members of the board some problems that may lead to interest conflict, so it is
necessary that the board of directors must be composed by transparent staff.

In addition, other solution to improve the board of directors proposed by the European
Commission are the definition of the work of the president and diversity in the board
(COM, 2010), this means that there are diverse qualities in the members that compose
the board and also there are a different points of view, it means that there is also good
communication.

Furthermore, the board of directors must delegate the work to achieve a greater
efficiency and safety when the directors do the work (COM, 2010), it means that each
director should have a speciality in the company and focus on that field of action. If this

17
aspect is respected, the effectiveness would substantially improve because financial
institutions currently have more complex structures.

To solve the problem of the training of the board of directors, a simple but effective
method is the realization of an external evaluation to the directors to obtain information
of their capacities. Once the evaluation is carried out, it will be communicated to the
shareholders or supervisors to determine if the directors are fit to be part of the board
(COM, 2010).

The measure to improve the risk assumed by the board of directors would not only
defend the interests of shareholders, the board must protect the interests of
stakeholders. The European Commission is studying the creation of a duty for the board
in order to reduce the risk of financial institutions and improve the quality of the long term
management. This measure is complicated because it is necessary to analyse the legal
laws of the European countries and act at that level (COM, 2010).

4.3. Remuneration System

The third important problem is the remuneration system which does not depend only by
the European Commission, it also depends by the shareholders and the financial plan
established by each financial institution. This is a very important issue because the
European Commission opened debates and also initiated applications against abusive
practices of remuneration (COM, 2010). This effort to improve remuneration polices
began when managers of listed companies began to increase their salaries significantly
in late of 1980.

For the one hand, the first measures against abuses of remuneration came in 2004,
when the European Commission tried to promote polices against such practices,
however, several factors led the European Commission to adopt new proposals in 2009,
that proposals would serve to improve the remuneration of the financial entities (COM,
2010), since short term performance was an inadequate method that affected the
shareholders and the situation of the entities.

For the other hand, transparency in remuneration had improved and shareholder rights
substantially increased in 2010, however, not all states applied the recommendations of
the European Commission, only ten states came to implement these recommendations.
The most alarming figure appears in the financial sector, since six member states did not
adopt measures related to the remuneration in financial services (COM, 2010).

In this work it has been seen previously that the remuneration system had not been
applied correctly, so the European Commission focuses on two factors that have a very

18
negative influence on financial institutions. COM (2010) argued that these two factors
are legal loopholes and directors remuneration.

In order to solve legal loopholes, the European Commission began investigations about
laws that correctly would keep the remuneration system and also these laws are the
same for all the countries of European Union, once the different laws are analysed, the
European Commission is negotiating the new laws with financial institutions in order to
improve investment funds, capital requirements and the real information of entities
(COM, 2010).

Regarding the remuneration of directors, the European Commission made a series of

recommendations with the objective of optimizing remunerations, however, the
recommendations provided by the European Commission were ineffective because the
entities did not follow these recommendations (COM, 2010), that is the reason because
the European Commission wants to promote the creation of laws that help to solve these
problems.

In addition, the financial entities must have more severe controls about the remuneration
of the employees, especially those with higher salary levels (Marcinkowska, 2014). For
that, the department of remunerations has to have the information about remuneration
system applied by the bank, so the staff can ensure that there is not over-remuneration.

In order to improve the remuneration system, the board of directors must ensure that it
is aligned with the long-term objectives of financial institutions and moderate risk-taking.
To achieve this, financial institutions should establish a remuneration model following the
guidelines proposed by the European Commission and it must be aligned with the
objectives of the entities (Marcinkowska, 2014). Also, there should be a comprehensive
control over the implemented model.

Another solution regarding the remuneration system would be to incentivize the

employees increasing the salaries (Marcinkowska, 2014). These salary increases would
correspond to the achievement of the objectives and the degree of effort and dedication
that the employees have invested to achieve the objectives.

To complete the recommendations regarding the remuneration system, the last proposal
would be to improve the supervision of the models used by financial institutions and
focused on risk management (Marcinkowska, 2014). This recommendation would has to
be evaluated and controlled by the European Commission in order to avoid deviations.

19
According to BOE: The annual report of remuneration must include complete, clear and
comprehensible information about the remuneration police of the board of directors
applicable to the current year (BOE, 2010).

4.4. Other corporate governance weaknesses

This subsection will show the different proposals to try to solve the problems regarding
the rating agency, regulatory framework, conflict of interest, the application of the
principles, shareholders, supervision and internal audit.

The first problem secondary problem to solve is the rating agency, to achieve an
improvement of this regard, the rating agencies should be controlled to avoid conflict of
interest, in addition, the qualification of financial products should be made by qualified
personnel of organizations such as the CNMV to determine whether the financial
products of certain financial institutions are suitable for sale (Cordoba, 2011).

Other measures that may help to improve the rating system are, on the one hand, the
increase of the ratings in proportion to the complexity of financial products and the other
hand, the rating agencies should be chosen randomly to ensure the independence with
the financial entities (Cordoba, 2011). With these measures it would be possible to
significantly improve the problems with rating agencies.

The second problem that it must be solved is the regulatory framework, it must be
integrated in the greater legal framework, in addition, it has to take into account the
different agents that are interacting in the regulatory framework. Finally, the regulatory
framework must define the laws of every agent that interact with the framework (Pata,
2017).

The third problem that it is difficult to solve is the conflict of interests, this problem is very
important because as it has seen in this work, the conflict of interests affects the
relationship between the company and the shareholders. COM (2010) pointed that the
conflict of interests must be governed by specific rules of legislation and supervisors
must control that these rules are followed.

The fourth problem that the European Commission is studying to try to solve is the non-
application of the principles of corporate governance, which means that the European
Commission will impose sanctions on entities that do not have good compliance with
these principles. This solution is complicated because the European Commission has to
study the law of the different states of the European Union in order to avoid possible
contradictions (COM, 2010).

20
The fifth aspect is regarding the role of the shareholder, the problem that appeared
before was that the shareholders did not maintain any type of control in the companies,
this little interest of shareholders is still less in financial institutions, leaving to control the
decisions of the directors and the profitability in the long term (COM, 2010).

The measures that the European Commission is trying to inculcate to the shareholders
are the cooperation through forums, ethical codes, analysis and information about
conflict of interest to the other shareholders, information on the remuneration to
intermediaries and improvement of information of the financial risks to the shareholders
(COM, 2010). With these measures, the European Commission expect that shareholders
have a greater impact and greater knowledge about the actions performed by the
entities.

The sixth aspect to improve is regarding supervisory organism, this is a very important
measure because after the financial crisis, supervision has become one of the main
focus of the causes of the crisis, therefore, the European Commission wants to
strengthen the supervision of the government of financial entities.

The solutions proposed by the European Commission to improve supervisory organisms

are greater control and information to the board of directors (inspecting the risks and
informing to the board about the problems), greater knowledge to the members of the
board of directors (evaluating the possible new members in a more strict way) and a
greater cooperation with the European supervisory organisms (COM, 2010).

The last problem of the corporate governance that the European Commission is trying
to solve is the internal audit, in order to solve the problem of the modification of the assets
of financial entities by internal auditors, the European Commission should control the
financial entities with more external auditors. These auditors reflect if the financial
statements issued by the financial entities comply with the statements that financial
entities actually have (COM, 2010), furthermore, the external auditors are necessary to
obtain transparency, which is the main element that must have all the entities and it
directly affects the conduct of the shareholders.

The European Commission proposes two improvements about the role of auditors, the
first is the cooperation between internal-external auditors these auditors with
supervisors, favouring the exchange of information to carry out a deeper and more
secure work in this sector. The second improvement is the integration of the external
auditor into risk information, which means that the external auditor can assess different
risks of financial institutions to support investors and the market in general (COM, 2010).

21
Table 1 shows a summary of the measures that should be taken into account the financial
institutions about some weak aspects of corporate governance that have favoured the
economic crisis of 2008 divided in two sections, the first section contains the most
relevant aspects of the corporate governance and the second section contains other
aspects that also affect the corporate governance of financial entities.

Table 1 Problems and solutions of the corporate governance in financial entities.

6- Empirical analysis

The remuneration system used models based in fixed remunerations and short-term
remuneration, the European Commission specified that it had to improve the
remuneration in long-term, however, the most financial entities did not follow that
recommendations.

It is important that the variable remuneration has a great impact in the entities because
this remuneration has to be mainly related with the achievements of the financial entities
objectives.

In order to analyse the importance of corporate governance in financial institutions, this

work will study the remuneration system of the banks with the performance of each bank
and the votes of the shareholders to observe if the shareholders agree the proposals of

22
the banks. To analyse the performance of the banks, this work will use the economic
profitability variable of each bank. This work is going to analyse BBVA, Bankia, Sabadell,
Santander, Bankinter, Caixabank and Popular Bank between 2013 and 2015. The
information extracted is exclusively of the CNMV, especially from each bank listed in the
IBEX35.

6.1 BBVA

Figure 2 shows the remuneration system of executives and non-executives directors of

BBVA bank, listed in IBEX35 between 2013 and 2015. It shows that the remuneration in
short term slightly increased between 2013 and 2014, in addition, this remuneration just
affected to the executive directors. On the other hand, there was a great change in the
remuneration system in 2015, this system was based on significantly reduce short-term
remuneration and also increase the long-term remuneration. Clearly, the remuneration
system of 2015 is in line with the recommendations proposed by the European
Commission to increase the long-term retribution to fit the objectives or because BBVA
has implemented a long term remuneration plan that was expected to materialize in
2015.

Figure 1 Remuneration BBVA

In order to verify if the variable remuneration is aligned with the performance of BBVA,
this work will also provide the economic profitability and the degree of acceptance of the
shareholders regarding the changes in the remuneration system.

23
Table 2 Economic profitability of BBVA

Table 2 shows the profitability of BBVA bank between 2013 and 2015. It can be seen
that there were a profitability increased slightly between 2013 and 2014, however, this
profitability decreased in 2015. This decrease in economic profitability could be due to
different situations.

Figure 2 shows the degree of acceptability of the remuneration system by shareholders

of BBVA bank between 2013 and 2015. It can be seen that there was a positive vote rate
higher than 90%, this also shows that the shareholders were satisfied with the measures
adopted, in addition, there is a relationship between the performance of BBVA and the
percentage of favour votes of remunerations, since the positive votes increased between
2013 and 2014 with the increase of the performance, however, the positive votes
decreased slightly in 2015, when the performance of BBVA decreased.

Figure 2 Percentage of BBVA votes

The analysis of BBVA concludes with the good performance of the entity and it caused
that the shareholders reflect it with the positives votes. Also, the remuneration of BBVA
in 2015 changed to adapt it to the recommendations of the European Commission, which
is still supported by shareholders.

24
6.2 Bankia

Figure 3 shows the remuneration system of executives and non-executives directors of

Bankia, listed in IBEX35 between 2013 and 2015. It shows that the remuneration system
levelled off during the three years, remuneration system usually lasts three years,
however, the entities can change it before the three years. Also, it seems that executive
directors did not receive any remuneration for the role of directors over the three years.
Clearly, Bankia did not change the remuneration system to adapt it to the
recommendations of the European Commission.

Figure 3 Remuneration of Bankia

In order to verify if the remuneration system of Bankia affects the performance of the
entity, this will also be related with the economic profitability between 2013 and 2015.
This work will also provide the percentage of satisfaction of shareholders based on the
votes.

Table 3 Economic profitability of Bankia

Table 3 shows the profitability of Bankia between 2013 and 2015. It shows that the
economic profitability increased sharply between 2013 and 2014. Also, the economic
profitability grew until 2015.

25
Figure 4 shows the acceptability of the shareholders of Bankia regarding remuneration
system between 2013 and 2015. It shows that the positive votes grew between 2013 and
2014 and also the votes not realised slightly dropped. Also, positive votes and votes not
realised levelled off between 2014 and 2015. It must be highlighted that there were
around 30% of votes that were not released over the three years. Clearly, there was a
bad situation of Bankia from the economic crisis that caused that there were votes not
released.

Figure 4: Percentage of Bankia votes

Two aspects are extracted from this study, first of all, the lack of participation of the
shareholders in the decisions of the remuneration, it is produced since the votes are just
informative, it means that if there were 90% of negative votes, the bank can decide
whether or not to change the remuneration system, but it has not contractual origin (BOE,
2010).

For the other hand, there was an increase of the economic profitability that produced a
slight growth of positive votes of shareholders and a slight drop of the votes not realised,
however, Bankia should improve the participation of shareholders in the general meeting.

Finally, it is noted that during the three years, the executive directors have not received
any remuneration, this is because directors at this role have not established any
remuneration, however, there is a lack of information on the remuneration for being
executives.

26
6.3 Sabadell

Figure 5 shows the remuneration system of executives and non-executives directors of

Sabadell, listed in IBEX35 between 2013 and 2015. It shows that the variable
remuneration in short term of directors increased constantly between 2013 and 2015,
clearly, it proves that the total retribution of short term constantly increased over the three
years. Regarding fixed remuneration, the average of executive directors remained
constantly between 2013 and 2015, however, the fixed remuneration of non-executive
directors constantly decreased over the three years. As Bankia, Sabadell did not apply
the recommendations of the European Commission.

Figure 5: Remuneration system of Sabadell bank

In order to verify if the remuneration system of Sabadell is aligned with the performance
of the entity, this will also be related with the economic profitability between 2013 and
2015. This work will also provide the percentage of satisfaction of shareholders based
on the votes.

Table 4 Economic profitability of Sabadell

Table 4 shows the profitability of Sabadell between 2013 and 2015. It shows that the
economic profitability increased constantly over the three years.

It can be related with the increase in short term variable of the remuneration system
applied in Sabadell between 2013 and 2015.

27
In order to test whether shareholders were in agreement with the remuneration system
proposed by Sabadell, this work will include a graph with the votes of the shareholders
of Sabadell.

Figure 6 shows the acceptability of the shareholders of Sabadell regarding remuneration

system between 2013 and 2015. It shows that votes of the shareholders did not change
significantly between 2013 and 2014, however, positive votes fell between 2014 and
2015 and also the negative votes increased slightly. It must take into account that there
were more than 30% of votes that were not released. Regarding votes not released,
there was growth in 2014, but it levelled off until 2015.

Figure 6: Percentage of votes of Sabadell

It concludes with a curious study because there were a constantly increase of the
economic profitability between 2013 and 2015 that it is related with the good performance
of the Sabadell, it caused the boost of the remuneration to the board of directors,
however, the participation of shareholders in the remuneration system was decreasing
over the three years, also Sabadell just increased slightly the remuneration in short term
of executive directors. It could be caused because the shareholders think that the
remuneration of the board of directors is not correctly aligned with the performance of
Sabadell or it could be caused by the lack of information or lack of knowledge by part of
the shareholders.

28
6.4 Santander

Figure 7 shows the remuneration system of executives and non-executives directors of

Santander, listed in IBEX35 between 2013 and 2015. It shows that the variable
remuneration in short term in total retribution increased sharply between 2013 and 2014,
also it increased slightly in 2015. Regarding fixed remuneration in total retribution, it
dropped between 2013 and 2014, however, it increased in 2015. Although total
remuneration increased in 2015, fixed remuneration average of executive and non-
executive directors did not changed significantly, also short term remuneration average
of executive directors slightly decreased in 2015, it is probable that there would be more
directors in 2015. As same of Bankia and Sabadell; Santander bank did not apply the
recommendations of the European Commission to implement the variable remuneration
in long term.

Figure 7 Remuneration system of Santander

To achieve a deeper analysis, this work will relate the remuneration with the performance
of Santander and the degree of participation of shareholders in the decisions of
remuneration system.

Table 5 Economic profitability of Santander

Table 5 shows the profitability of Santander bank between 2013 and 2015. It shows that
the economic profitability rose between 2013 and 2014, also the remuneration system
levelled off until 2015.

29
Figure 8 shows the degree of acceptability of the shareholders of Santander regarding
remuneration system between 2013 and 2015. It shows that votes of the shareholders
did not change significantly over the three years. There was a participation of positive
votes of the shareholders greater than 90% over the three years. Positive votes slightly
decreased between 2013 and 2014, however, it increased in 2015. Also, negative votes
decreased constantly over the three years. Regarding votes not released, it grew slightly
between 2013 and 2014 and it levelled off in 2015.

Figure 8 Percentage of Santander votes

Clearly, the situation of Santander is different to the situation of the majority of banks that
this work has analysed. There was a great acceptability by the shareholders to the
increase in short term of remuneration of the executive directors in 2014 and this
acceptability was also maintained in 2015. Shareholders do not care that the
compensation is little higher if there is confidence in the work of the directors.

6.5 Bankinter

Figure 9 shows the remuneration system of executives and non-executives directors of

Bankinter, listed in IBEX35 between 2013 and 2015. It shows that the total fixed
retribution levelled off between 2013 and 2014, however, it increased sharply in 2015
because the fixed remuneration of executive and non-executive directors increased
slightly in 2015. Regarding variable remuneration in short term of 2014, it boosted
because the short term remuneration of executive directors increased slightly between
2013 and 2014. For the other hand, short term remuneration dropped slightly in 2015.
As the majority of the banks, Bankinter did not apply the recommendations of the
European Commission to implement the variable remuneration in long term.

30
Figure 9 Remuneration system of Bankinter

In order to verify if the remuneration system of Bankinter affects the performance of the
entity, this will also be related with the economic profitability between 2013 and 2015.
This work will also provide the percentage of satisfaction of shareholders based on the
votes.

Table 6 Economic profitability of Bankinter

Table 6 shows the profitability of Bankinter between 2013 and 2015. It shows that the
economic profitability increased constantly between 2013 and 2015. The progression in
the performance of Bankinter could explain the better remuneration in short term
between 2013 and 2014, also the better fixed remuneration between 2014 and 2015.

Figure 10 shows the degree of acceptability of the shareholders of Bankinter regarding

remuneration system between 2013 and 2015. It shows that positive votes climbed
between 2013 and 2014 and it levelled off until 2015. Regarding negative votes, it
levelled off over the three years. Finally, votes not realised decreased constantly over
the three years.

31
Figure 10 Percentage of Bankinter votes

The study of Bankinter concludes with the good relationship between the remuneration
of directors and the good performance of the entity, also it is related with the votes of
shareholders, however, there were around 30% of votes not realised by shareholders
over the three years. It could explain that shareholders had lack of participation in the
entity. It is appreciated that there was a problem with the lack of information about the
remuneration of executive directors for being executives.

6.6 Caixabank

Figure 11 shows the remuneration system of executives and non-executives directors of

Caixabank, listed in IBEX35 between 2013 and 2015. It shows that the total fixed
retribution increased constantly between 2013 and 2014, it is curious because the fixed
remuneration of executive directors decreased and the fixed remuneration of non-
executive directors levelled off between 2013 and 2014, however, fixed remuneration of
executive directors grew in 2015. Regarding variable remuneration in short term, it
dropped between 2013 and 2014, also it levelled off in 2015. For the other hand,
Caixabank stabilised long term variable remuneration in 2015.

Figure 11 Remuneration system of Caixabank

32
In order to verify if the remuneration system of Caixabank affects the performance of the
entity, this will also be related with the economic profitability between 2013 and 2015.
This work will also provide the percentage of satisfaction of shareholders based on the
votes.

Table 7 Economic profitability of Caixabank

Table 7 shows the profitability of Caixabank between 2013 and 2015. It shows that the
economic profitability grew between 2013 and 2015, also it levelled off in 2015. The
progression in the performance of Bankinter between 2013 and 2014 could explain the
better fixed remuneration, however, this work will analyse the degree of shareholders
regarding the better fixed remuneration in 2015.

Figure 12 shows the degree of acceptability of the shareholders of Caixabank regarding

remuneration system between 2013 and 2015. It shows that the positive votes increased
slightly between 2013 and 2014 and it levelled off until 2015. Regarding votes not
released, it slightly increased between 2014 and 2015.

Figure 12 Percentage of Caixabank votes

Clearly, the study of Caixabank shows that the degree of acceptability of shareholders
did not change significantly, the positive votes were greater than 90% over the three
years, also it is appreciated that the remuneration of the board increased sharply
between 2014 and 2015, but the performance of the entity regarding the economic
profitability levelled off between 2014 and 2014. As Bankia and Bankinter, Caixabank
only showed the remuneration of the executive directors for being part of the board, but
not for being executives.

33
6.7 Popular

Figure 13 shows the remuneration system of executives and non-executives directors of

Popular bank, listed in IBEX35 between 2013 and 2015. It shows that there was only
short remuneration in 2014 and 2015, total remuneration in short term increased
because short term remuneration of executive directors grew slightly between 2013 and
2014. For the other hand, Popular bank applied only fixed remuneration in 2015, so total
fixed retribution increased sharply because the non-executive directors (majority of
directors) obtained fixed retribution. It is interesting that Popular bank included in the
statutes of 2015 a remuneration for non-executive directors, however, this remuneration
is not obligatory.

Figure 13 Remuneration system of Popular bank

In order to verify if the remuneration system of Popular bank affects the performance of
the entity, this will also be related with the economic profitability between 2013 and 2015.
This work will also provide the percentage of satisfaction of shareholders based on the
votes.

Table 7 Economic profitability of Popular bank

Table 7 shows the profitability of Popular bank between 2013 and 2015. It shows that
the economic profitability climbed in 2014, however, it fell sharply between 2014 and
2015.

Figure 14 shows the degree of acceptability of the shareholders of Popular bank

regarding remuneration system between 2013 and 2015. It shows that positive votes

34
increased slightly between 2013 and 2014, however it decreased in 2015. Regarding
negative votes, it levelled off between 2013 and 2014, but negative votes increased in
2015. It was result of the bad situation of Popular bank and also the increase of the
remuneration in 2015.

Figure 14 Remuneration system of Popular bank

The analysis of the Popular bank is very interesting by the current situation that this entity
is going through, since it has been discovered that the accounts that made Deloitte of
the entity were falsified. The situation of Popular bank was a disaster because this entity
could not solve the exit of the deposits with the liquidity provided by the European Central
Bank. Finally, Popular bank was acquired by Santander bank for 1 euro.

The dates that the Popular bank demonstrate that there was a bad situation of the entity
because the economic profitability of 2015 declined sharply, this situation and the
variation of the system of short term remuneration by a fixed system was not enough for
the shareholders to vote negatively. Also, there was an increase in negative votes by
shareholders over the remuneration of 2015, however, it was not significant.

7- Conclusion

Although this work has shown that there has been a good evolution on the financial
institutions and constants improvements by these institutions to be able to effectively
solve the problems regarding corporate governance, these measures were insufficient
to reduce the impact of the economic crisis.

It is clear that there are several problems regarding corporate governance. The
European Commission is working to find new solutions through recommendations to
reduce the problems. The principal problems and solutions are for one hand, the lack of
homogeneity regarding the presentation of the remuneration system which could be

35
solved with greater control by the international institutions. For the other hand, the
passivity of the shareholders regarding the votes of some financial institutions, this
problem may be due to the lack of information by the entities or by a lack of knowledge
of the shareholders which could be solved with greater involvement by the shareholders
in the study of the entity.

The recommendations of the European Commission could significantly support the

entities, in the case of remunerations which has been the object of study, it has been
observed that only 28% (2/7) of financial entities of the IBEX35 had long-term
remuneration, the rest of the entities may not have defined the long-term remuneration
plan or these entities may not have materialized the plan because the expected results
have not been met by the entity. If the second option were given, the shareholders would
show a passive attitude.

Finally, it must be taken into account that this study is merely exploratory. Also there are
limitations regarding the performance of the entities to empirically analyse the
remuneration system because this work has only used a ratio. It is recommended that
future studies apply a similar empirical analysis with the different recommendations of
this work that have not been analysed empirically.

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Roldan, J and Caro, A. (2015) Las entidades financieras en Espaa. Un sistema en
evolucin al servicio de la sociedad. Fundacin de estudios financieros. Downloaded
from: http://www.fef.es/new/publicaciones/papeles-de-la-fundacion/item/352-50-
a%C3%B1os-de-analisis-financiero-en-espa%C3%B1a.html [23 March 2017]

Schiehll, E., and Martins, H. (2016). Cross-national governance research: A

systematic review and assessment. Corporate Governance: An International Review
24, 181199.

The committee of the financial aspects of corporate governance (1992) Financial

aspects of corporate governance. London: The committee of the financial aspects of
corporate governance

Figures

Figure 1

COM (2010) Corporate governance in financial institutions: Lessons to be drawn from

the current financial crisis, best practices. Green paper. Brussels: COM

OECD (2009) Financial market trends. The corporate governance lessons from the
financial crisis. Paris: OECD

Figures of the empirical analysis (2 14)

These references serve for all figures of the empirical analysis.

CNMV (2013) Informacin sobre el gobierno corporativo. Informes remuneraciones

consejeros. Madrid. CNMV

CNMV (2014) Informacin sobre el gobierno corporativo. Informes remuneraciones

consejeros. Madrid. CNMV

CNMV (2015) Informacin sobre el gobierno corporativo. Informes remuneraciones

consejeros. Madrid. CNMV

CNMV (2013) Estadsticas de remuneraciones de los consejeros de las sociedades

cotizadas. Madrid. CNMV

CNMV (2014) Estadsticas de remuneraciones de los consejeros de las sociedades

cotizadas. Madrid. CNMV

CNMV (2015) Estadsticas de remuneraciones de los consejeros de las sociedades

cotizadas. Madrid. CNMV

38
Tables

Tables of empirical analysis (1-7)

This references serve for all tables of the empirical analysis.

CNMV (2014) Informes financieros anuales. Madrid. CNMV

CNMV (2015) Informes financieros anuales. Madrid. CNMV

39