A curious case of board governance in rising geopolitical tensions : When shareholder and financial institution interests are at odds — a case study of a Canadian bank

Abstract

In an era of escalating geopolitical tensions, it is critical for governments to prevent or tightly control foreign influence and interference in the industries that are strategically vital to a country’s sovereignty, stability, and resilience. Financial services and banking is at or near the top of these vital industries where geopolitical risk significantly increases bank systemic risk. There are new guidelines and regulations in place to prevent foreign influence and interference from a national security perspective. Government intervention through the use of ministerial and national security tools (divest orders, enhanced security conditions) is relatively rare. When a government intervenes in a board’s governance, it introduces a unique dynamic where the board must balance its traditional fiduciary duties with specific government objectives, significantly affecting the board’s independence, accountability, and decision-making processes. It may also put the shareholders’ interests at odds with the financial institution. These topics are discussed in this paper. It presents a case study of government intervention due to national security concerns, relying on publicly available information. The discussion is then extended to the board governance challenges and application of board governance principles in this peculiar situation. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.