For further details please see: http://www.edelman.com/. 2  Full letter published on Business Insider. See http://www.businessinsider.com/larry-fink-letter-to-ceos-2015-4?IR=T. BIS central bankers’ speeches  1  (Mayer (2013)) and Lynn Stout’s The Shareholder Value Myth (Stout (2012)) each raise deep and far-reaching questions about the purpose and structure of today’s companies. Are these concerns legitimate? What is their precise micro-economic source? And are they now of sufficient macro-economic importance to justify public policy intervention? To answer those questions, it is useful to start with the origins of modern-day companies, before looking at the potential incentive problems among stakeholders embedded in those structures. Finally, I consider public policy actions that might mitigate these problems. These problems are not specific to any industry. But banks’ balance sheets and governance structures mean they may be especially prone to these incentive problems. So I will use them to illustrate some of the micro-economic frictions and their macro-economic impact. Indeed, it is no coincidence that the most significant changes to corporate governance practices recently have been within the banking sector. A short history of companies Let me begin by defining “corporate governance” in its broadest sense: as the set of arrangements that determine a company’s objectives and how control rights, obligations and decisions are allocated among various stakeholders in the company (Allen and Gale (2000)). These stakeholders comprise not only shareholders and managers, but also creditors, employees, customers and clients, government, regulators and wider society. Over the past two centuries, several dozen pieces of company legislation have been enacted in the UK alone.

16  BIS central bankers’ speeches  BIS central bankers’ speeches  17  18  BIS central bankers’ speeches  BIS central bankers’ speeches  19  20  BIS central bankers’ speeches  BIS central bankers’ speeches  21  22  BIS central bankers’ speeches  BIS central bankers’ speeches  23  24  BIS central bankers’ speeches  BIS central bankers’ speeches  25  References Acheson, G, Hickson, C and Turner, J (2010), “Does limited liability matter?” Evidence from nineteenth –century British banking, review of Law and Economics, Vol 6(2), pages 247–73. Admati, A and Hellwig, M (2014), “The Bankers” New Clothes: What’s Wrong with banking and What to Do about it’, Princeton University Press. Alessandri, P and Haldane A G (2009), “Banking on the State”, speech delivered at the Federal Reserve Bank of Chicago, available at: http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2009/speech409. pdf. Allen, F. and Gale, D (2000), “Comparing financial systems”, MIT Press. Asker, J, Collard-Wexler, A and De Loecker J (2014), “Dynamic Inputs and Resource (Mis)Allocation”, Journal of Political Economy, vol 122. Bagehot, W (1862), “Limited Liability in Banking” – I’ and “Limited Liability in Banking” – II’ in St John-Stevas, N (1978) “The Collected Works of Walter Bagehot Vol. 9”, The Economist, London. Bailey, A (2014), speech delivered at the City Banquet London, available at: http://www.bankofengland.co.uk/publications/Documents/speeches/2014/speech763.pdf. Becht, M, Bolton, P and Roell A (2011), “Why Bank Governance is Difference” Oxford Review of Economic Policy, vol 27.