IIF Chair Blames CEO Pay for Bank Problems

by Django Gold

The Institute of International Finance (IIF) released its Final Report Thursday, identifying a number of problem areas that have led the global economy to its current state of unrest. The report, subtitled “Financial Services Industry Response to the Market Turmoil of 2007-2008,” lists six major areas of recommendation, chief among them improved risk management and compensation policies among the world’s financial institutions.

Introducing the report was IIF chairman Dr. Joseph Ackermann, who is also chairman of Deutsche Bank AG. In his address to the National Press Club on Thursday, Dr. Ackermann summarized and commented upon the report, “[trusting] that as an industry-wide group [the IIF] can make a substantial contribution to finding a solution to the problems underlying the persistent market turbulence.”

Risk management, which Dr. Ackermann identified as the report’s centerpiece, earned a large portion of the 209-page report. The IIF advocated a stronger engagement on the part of senior management in regards to risk. Said Ackermann, “One of the most important tasks of senior management and the board in the risk management area is to ensure that a robust risk culture pervades throughout the firm and that, against this backdrop, a well-understood risk appetite is articulated.”

Second on the IIF recommendation list was a renewed look at executive compensation, especially as applies to aligning pay with shareholder interests. According to Ackermann, compensation is a touchy issue, yet one that requires scrutiny: “Incentive pay has been a notable if uneven area of weakness in business practices, and correcting these weaknesses will require the industry to exercise greater self-discipline.”

The IIF is a global organization of financial institutions, composed of over 380 financial services firms. It was founded in 1983.