Further reflections on the collapse of the Silicon Valley Bank

• Published date: 01 June 2023
• Author: Oonagh McDonald
• Date: 01 June 2023
• DOI: http://doi.org/10.1111/jacf.12569

DOI: 10.1111/jacf.12569

ORIGINAL ARTICLE

Further reflections on the collapse of the Silicon Valley Bank

Oonagh McDonald

Independent Policy Advisor

Correspondence

Oonagh McDonald, Independent PolicyAdvisor.

Email: oonagh.mcdonaldcbe@gmail.com

INTRODUCTION

Bank regulators were undoubtedly asleep at the wheel in the

months or even years before the collapse1of the Silicon Valley

Bank. But the focus on the serious inadequacies of the regulators

can blind us to the failures of those responsible for running the

bank: its senior management and the board. When we take into

consideration the qualifications and composition of the board, it

becomes much less of a mystery that SVB failed to monitor and

control the interest rate and depositor concentration risks that

were the two main causes of the bank’sfailure. What little banking

and financial services experience and expertise SVB’s board could

lay claim to was notably lacking in depth, especially in the areas

of finance and accounting, risk oversight and management, and

regulation.

Of the SVBFG board members in 2022–2023, only two,

Thomas King and Alison Davis, had banking experience worth

mentioning. King, formerly chief executive of investment bank-

ing at Barclays, and currently operating partner at Atlas Merchant

Capital, joined the board in September, 2022. Davis, though

a board member of the Royal Bank of Scotland plc, had no

experience as a senior executive in banking.

The remaining 10 independent directors of SVBFG included

the following: (1) the CEO of a global investment firm in high

tech companies; (2) the CEO of a digital tech company; (3) the

CIO of a large health company (4) a director of a blockchain fund

of funds; (5) a former consultant in business processing; (6) a

CEO of an online education company; (7) a retired accountant

from a leading accountancy firm; (8) a former Treasury Under

Secretary for Domestic Finance; (9), a venture capitalist; and (10)

the owner of a vineyard. Of the 11 board members, five had

been members for over 10 years, (including two who had served

for 18 years) and one for 7 years. The remaining five had been

appointed between 2020 and 2022. Thomas King served on the

Compensation and Human Capital Committee in the months

before the collapse, when he probably should have served on the

Risk Committee.

1Effectiveness, Guidance on Audit Committees, Risk Management, Internal Control and

Related Financial and Business Reporting.

In the following sections, I set out the major tenets of the UK

Corporate Governance Code and examine the composition and

competencies of the SVBFG’s board. As will become clear, the

SVBFG’s board would not have met the standardsrequired by the

Code. That comparison illustrates the extent of the inadequacies

of the board and its committees. That in turn raises the question as

to whether stronger corporate governance would have prevented

the bank’s failure or restrained the executives’ pursuit of high-risk

deposits and rapid, but risky growth.

THE UK CORPORATE GOVERNANCE CODE

The Code is the responsibility of the Financial Reporting Council,

the independent regulator of auditors, accountants, and actuar-

ies, which sets the UK’s Corporate Governance and Stewardship

Codes. These Codes are designed for investors and others who rely

on company reports, including the audit and risk management

functions. First published in 1992, the Code has been regu-

larly updated to take account of the UK’s Corporate Governance

framework. The current version of the Code (2018) is the result

of wide-ranging consultation and research, which led to updates

of the Principles and more detailed Provisions and Guidance.

The fundamental approach remains unchanged, centered as it is

on the principle of collective responsibility within a unitary board.

The FRC states that “the Code does not set out a rigid set of rules;

instead, it offers flexibility through the application of Principles,

the ‘comply or explain’ Provisions and supporting guidance.”2

This is not an escape clause, but rather a demand for transparency

from companies complying with the Code. Any departure must

be supported by a public explanation of the reasons, supported by

their alternative to good governance.

The Prudential Regulation Authority (PRA) incorporated

the Code in its Supervisory Statement SS5/16 on Board

2Introduction to the UK Corporate Governance Code, 2018. The Code applies to companies

with a premium listing on the London Stock Exchange, whether incorporated in the UK or

elsewhere, and by law to the largest private companies. It can be suitably adapted for smaller

companies. The Code is also supported by Guidance on Board Effectiveness, Guidance on

Audit Committees, Risk Management, Internal Control and Related Financial and Business

Reporting.

J. Appl. Corp. Finance. 2023;35:37–41. © 2023 Cantillon & Mann.37wileyonlinelibrary.com/journal/jacf