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A Corporate Governance Case Study Of Credit Suisse

Article · December 2022

DOI: 10.5281/zenodo.13904573

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A Corporate Governance Case
Study Of Credit Suisse

Dean Marc Co

Field CTO | ZedOptima Enterprises

A paper conducted under:

Birkbeck, University Of London
Corporate Governance
14 December 2022
CONTENTS

LIST OF TABLES 2
INTRODUCTION 3
HISTORY 4
PRESENT REALITIES AND CHALLENGES 5
REFERENCES 10

​​

1
INTRODUCTION

The foundation of Credit Suisse marked a crucial waypoint in the history of Switzerland
towards industrialisation. This paper explores the history and current affairs of Credit Suisse,
arguably one of the most fabled institutions in Switzerland, with keen perspectives on
corporate governance. It argues that while there has been a string of scandals that befell the
bank questioning its integrity, morality, reputation, and operational soundness, the
accountability and responsibility equally rest on its political and cultural environment (Guex,
2000; Hurst, 2008; McGrath, 2020; Revil, 2022).

This discourse is inextricably entrenched with the history of the modern confederacy of
Switzerland: its foundation, early phases as a corporation, influence in national legislation,
impact on the economy, and its transformations. Next, as with any storied journey with its ups
and downs, we outline recent controversies, challenges, and scandals, the changes enacted
throughout, and understand it from the viewpoint of corporate governance, both the broader
and deeper sense whenever theories and practices are relevant. Finally, we opine on policy
considerations relevant to Credit Suisse as it charts its future, within the organisation, its
immediate political and economic circumstances, and towards the undeniable impact it has on
the world at large.

HISTORY

Credit Suisse is a leading Swiss bank in the world. Established in 1856 by a Swiss politician
and business leader, Alfred Escher, Credit Suisse was built to serve the immense financing
required for the core civil transport and energy infrastructure in Switzerland. It also extended
this finance apparatus to funding the national electrical grid and other European railway
networks (Credit Suisse, 2022; Jung, 2009; Meier et al, 2013). In parallel with commercial and
nation-building interests, the political-economic perspective that Escher espoused considered
the sovereign independence from influence by France in the construction of Switzerland’s
critical infrastructure (Meier et al, 2013; Pohl, 1994).

From its origins, we observe that the aim of Credit Suisse, as a public joint-stock
corporation, is intimately tied to long-term developments serving state-level and regional
geopolitical missions (Clarke, 2004; Jung, 2009). While corporate governance has not reached
mainstream attention and contemporary definitions then (OECD, 2021), it was founded as a
strong purpose-driven corporation as we know it today (Cadbury, 1992; Clarke, 2004; Clarke,
2014; Credit Suisse Group, 2022).

2
 In parallel, socio-political, state, and cultural sensitivities (Guex, 2000) were essential
drivers in why, when, and how Credit Suisse was instituted. Corporate governance theories
and history suggest a chronological evolution of the corporation from competitive capitalist of
small firms to managerial capitalist and other complex legal and structural corporate forms
(Cheffins, 2013; Clarke, 2014; Haldane 2015). In the case of Credit Suisse, it is evident in its
rudimentary conception, it already aimed for far-reaching missions that are multi-generational
in nature and whose evolving structure required the abstraction of shareholders from
governance and management of the organisation (Franks & Nunnally, 2010, p.198).

Apart from transport and railways infrastructure, Credit Suisse exerted its influence in
the economic, business, military, and political spheres (Franks & Nunnally, 2010, p.198;
Hausman et al, 2008, p.98; Meier et al, 2013, p.89; Pohl, 1994, p.1016). As a politician and
business leader, Escher as a founder, entrenched the organisation inextricably in Swiss
banking legislation pertaining to state and banking governance. Consequently, the specific
ethos of banking secrecy was further ratified from its original form incepted in the Great
Council of Geneva (Guex, 2000). This interdependency between a public corporation and
government institutions went as far as Credit Suisse becoming the primary consultant in
drafting legal provisions itself (Guex, 2000). Coexisting with the spirit and practical
implementation of global, domestic, and geographic neutrality, this regulation became an
economic, cultural, and reputational pillar, at home and abroad for Swiss banks and
Switzerland.

As would be demanded by shareholders, expanding business and increasing profits will

inevitably take a bigger role in the evolution of Credit Suisse, like deposit counters and other
financial services related businesses. An interesting development and sign that risk
management started to loosen was when several direct ventures incurred relatively immense
losses at the time; e.g. Sugar Beet Factory, which may be far removed from the core or
extended business of Credit Suisse (Pohl, 1994, p.1016).

PRESENT REALITIES AND CHALLENGES

While banking and finance have their fair share of scandals and financial issues, Credit Suisse
stands out due to the scale of its operations and its seeming ability to emerge from these
scandals; partly owing to the extent of assets it manages (Clarke, 2014; Financial Stability
Board, 2021; US Congress, 2018) and specific provisions in Swiss Federal Act on Banks and
Savings Bank, in particular Article 47 (Federal Council of Switzerland, 2022). This article
outlines banking secrecy provisions, which shelter Swiss banks from pressures of disclosure to
third parties (Guex, 2000). Additionally, included in the spirit of the Swiss Banking Act are

3
tenets that discourage state intervention, supervision, and inspection apart from exceptional
cases in which a semi-state third-party institution is tasked with reviewing situations not
explicitly codified in law (Guex, 2000).

Table 1: Post-Financial Crisis Investigations and Events (2008 - 2020), A Partial View (Makortoff
& Pegg, 2022; Pegg et al, 2022; Shields et al, 2022; US SEC, 2018)

It has become a dilemma to reconcile the unique and atypical circumstances of Credit
Suisse, its historical context and key events, with theories and the practical nature of Corporate
Governance. While it may be an easier endeavour to select just one event, it would be a
disservice to perceiving its unique context. On one hand, the prevailing definitions and
practices of Corporate Governance were agreed upon by consensus as a relatively recent
discipline, circa 1970 (Cheffins, 2013) for which Credit Suisse pre-dates by more than a
century. On the other hand, the concept of governance in its broadest sense -- referring to
means and medium of interdependent activities coordination, especially in relation to
commercial, legal, and socio-political geographic dimensions (Jessop, 1998) -- definitely
applies.

4
Table 2: Timeline Of Scandals And Controversies (2018 - 2022), A Partial View

5
 We also take an expeditious review of what Credit Suisse already has in place:
comprehensive organisational and regulatory sensitive guidelines relating to its Corporate
Governance, Board of Directors Independence, Purpose Statements and Code of Conduct,
Culture, Strategy, Sustainability Statements, Multispectrum Standing Committees, Audit
Functions, and Operational Frameworks, most of which has been long-standing, regularly
updated, and regulated by the national regulatory body, i.e. FINMA or the Swiss Financial
Market Supervisory Authority (Credit Suisse Group, 2022; Credit Suisse - Executive Board,
2022).

With a more recent time horizon, one remains instilled with cognitive dissonance wading
through the complexity of journals, documents, data sets, materials, reports, official news,
rumours, statements, and others. Outlined in Table 1 and Table 2 are some of the publicly
available events relating to official investigations and reviews as well as controversies and
scandals, respectively. Using these points in time as anchors for analysing existing materials,
one is met with a proliferation of contemporarily defined corporate governance publications
(Financial Stability Board, 2021), legal charters (Federal Council of Switzerland, 2022), national
economic as well as sector-specific codes of best practices (economiesuisse, 2016; Swiss
Bankers Association, 2022), and professionally prominent groups of people (Credit Suisse -
Board of Directors, 2022) leading the charge in running organisations.

Ironically, overlaying (1) the chronology of leadership changes including the demands
for achieving top leadership positions, controversies, scandals, and litigation; with (2) the
existence of charters and practices of corporate governance that has been rigorously defined
at varying levels of industry and implemented as essential requirements for a publicly listed
corporation, one may discern a tension emerging from a corporate governance theory
perspective (Clarke & Mittal, 2022; Credit Suisse - Executive Board, 2022).

Firstly, there is a clear sensitivity for the importance of Credit Suisse from the
perspective of wider society. This is nearly undeniable as a systemically important finance pillar
of the international economy and as evidenced by the attention it receives. In addition,
purpose, sustainability, corporate social responsibility, and corporate governance frameworks
are enshrined in nearly all levels of public corporations in Switzerland. It is in some sense, a
tacit context of Swiss regulation (Fedlex, 2022). This manifests a clear public statement that as
a corporation, Credit Suisse is not in theory, leaning towards a shareholder primacy model of
governance alone (Armour et al, 2003; Blair & Stout, 1999; Clarke, 2014; Palladino & Karlsson,
2019; Stout, 2012a). With this and the structural changes (Monks & Minow, 2011), business
model evolution (Coase, 1937), and purpose statements regarding risk, customer care, and risk
management, we can conclude a direction towards a multiform and multi-stakeholder

6
approach to corporate governance while remaining to operate under the close scrutiny of
national and international institutions (Alchian & Demsetz, 1973; Clarke, 2004). Secondly and
ironically, it seems the challenges and scandals, relentlessly continue even after numerous
leadership changes, removal of perpetrators, structural and business strategy changes, and
complete overhaul of the corporation and the board in relation to corporate governance issues
like lapses in monitoring of risks, abuses by management, and corrupt practices entrenched in
the culture (McGrath, 2020; Pegg et al, 2022).

Table 3: Relevance of select corporate governance theories and models to Credit Suisse (Berle
& Means, 1932; Coase, 1937; Jensen & Meckling, 1976; Stout, 2012b)

FUTURE

7
A reconciliation of the history and present of Credit Suisse with its future, in terms of its
operating temper, corporate governance, and regulatory milieu, produces another perplexity.
As we have been recently reminded by the Suisse Leaks (Süddeutsche Zeitung, 2022),
Archegos scandal (Glazer et al., 2021), and several U.S. Department of Justice Fraud and Tax
Evasion cases (US SEC, 2018), corporate governance is not merely concerned with its varied
shareholders and layered managers of the corporation. It engages the wider environment: from
governments, public/private institutions, other business entities, and finally towards wider
society. Credit Suisse is aware of this, as evidenced by major restructuring that is still ongoing
from a purpose, social, business, and governance perspective.

Firstly, the Suisse leaks instruct us of the culture of looking the other way or willful
ignorance regarding questionable financial provenance (Makortoff & Pegg, 2022). Despite
codes of conduct, risk management, and severe compliance checks prior to onboarding
questionable client accounts, some corner cases evade detection or have been overlooked as
legacy while regulations change over time. Secondly, the Archegos controversy nudges us to
the fact that Credit Suisse, while distinguished often as an example, is just one of many large
banks in the world (Glazer et al, 2021) that has fallen victim to abuses of risk management and
trust. This is a recurring theme in the understanding of market and financial instability
(Konzelmann, 2010) where exploitative practices of rogue bankers or the banking industry
unjustly enrich themselves when they get away with it (Cressey, 1954) but are redeemed by
bailouts or excused with barely any criminal charges proportionate to the damages they
wrought to taxpayers, clients’ hard-earned resources, pensions, and the stability of the market
itself. Finally, with cases pursued by U.S. institutions, successful exfiltration of criminal
information through legal means can only be achieved via diplomatic or coercive state-level
actions; albeit, results are sporadic and limited (Emmenegger & Eggenberger, 2018; US SEC
2018). Swiss Banking Secrecy, while some may view it as immoral (Pegg et al, 2022), is
ultimately an amoral political and economic mechanism (Guex, 2000; Swiss Bankers
Association, 2022) that has taken hundreds of years to develop, in response to geopolitical
pressures and the value of the Swiss to remain neutral.

Cognizant of the breadth and depth of information thus far analysed, culture, people,
and enforcement are among what is left to benefit from future actionable attention by
companies. Fortunately, Credit Suisse has given ample investment in stabilising its guidelines
for these concerns which are approved periodically by the government (Credit Suisse Group,
2022). They are also already under increased scrutiny by regulators. Unfortunately, the most
challenging aspect of running a corporation is always its most volatile: its people and its culture
(Alvesson, 2013; Alvesson & Sveningsson, 2011) and how diligently it will relentlessly enforce
all measures to achieve good corporate governance.

8
9
LIST OF TABLES

Table 1: Post-Financial Crisis Investigations and Events (2008 - 2020), A Partial View (Makortoff & Pegg,
2022; Pegg et al, 2022; Shields et al, 2022; US SEC, 2018)

Table 2: Timeline Of Scandals And Controversies (2018 - 2022), A Partial View

Table 3: Relevance of select corporate governance theories and models to Credit Suisse (Berle & Means,
1932; Coase, 1937; Jensen & Meckling, 1976; Stout, 2012b)

10
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