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Abstract: In the aftermath of the Great Recession, shareholders and regulators expect financial institution boards of directors to play an active role in risk management. To date, however, shareholders, policymakers, and academics have ignored a critical shortcoming: the directors of the United States' largest financial institutions are too busy to fulfill their governance responsibilities. Many financial institution directors hold full-time executive positions, and most serve on the board of at least one other company. Although these outside commitments provide important learning and networking opportunities, they also contribute to cognitive overload and limit the time that directors spend assessing strategy and risk. This Article argues that overcommitted directors impair the governance of large financial institutions. These firms, by virtue of their complexity and systemic importance, require enhanced risk monitoring that busy directors are ill-equipped to provide. Nonetheless, the boards of many large financial institutions remain alarmingly overcommitted. Through a series of case studies-including Wells Fargo's fraudulent accounts scandal and JPMorgan's London Whale trades-this Article explores how busy directors inhibit oversight of management, increase the risk of firm failure, and could cause the next financial crisis. This Article proposes a series of reforms to alleviate director overcommitment and thereby enhance the stability of the financial system.
INTRODUCTION
The winter of 2012 was a busy time for James Crown. As the lead independent director of Sara Lee Corporation,1 Crown began the year by con- ducting a search to replace Sara Lee's CEO and overseeing a spin-off of half of Sara Lee's business lines.2 Meanwhile, defense contractor General Dynamics Corporation-where Crown also served as lead independent director-was scrambling to cope with $1 trillion in congressionally mandated defense budget cuts.3 At the same time, Crown-the grandson of a wealthy industrialist-managed stakes in the Chicago Bulls, New York Yankees, Rockefeller Center, and the Aspen ski resort as president of his family's multi-billion dollar investment company.4
As if those responsibilities were not enough, Crown also served on the board of the largest financial institution in the United States, JPMorgan Chase & Co. ("JPMorgan").5 Crown, in fact, occupied a crucial role on JPMorgan's board-he chaired the Risk Policy Committee ("RPC"), which was in charge of overseeing significant risks facing the firm.6
JPMorgan's winter proved to be eventful. A trader in the firm's...