Yesterday, I highlighted the Dutch cabinet's response to the Dutch Banking Code 2009. Here's more codification news re the banking sector.
In post No. 87 I discussed Sir Walker's
The consultation period expired some time ago, and here's the end result of the project: A Review of Corporate Governance in UK Banks and Other Financial Institutions - Final Recommendations. It's a whopping 184 document, chock-full of constructive thoughts and guidelines, said to "introduce the toughest pay regulations in the world with the Government set to implement its radical recommendation to improve corporate governance at banks."
Walker recommends to overhaul the boards of banks and other big financial institutions by strengthening the role of non-executives and giving them new responsibilities to monitor risk and remuneration. He also recommends a stewardship duty on institutional shareholders to play a more active role as owners of businesses. From the 4 page press release:
“The fundamental change needed is to make the boardroom a more challenging environment than it has often been in the past. “This requires non-executives able to devote sufficient time to the role in order to assess risk and ask tough questions about strategy. “Institutional investors should be less passive and prepared to engage earlier if they suspect weaknesses in governance. They enjoy the privilege of limited liability whereas taxpayers have ended up assuming unlimited liability in respect of the big banks. Early preventive medicine through shareholder engagement can save everyone substantial time and money later on.” On pay the Walker Review recommends extending the role of the remuneration committee to cover firm-wide remuneration policy as well as giving the committee direct responsibility for the pay of all highly-paid employees. At least half of variable pay or bonuses should be paid in the form of a long-term incentive scheme with half vesting after three years and the rest after five years. Two-thirds of cash bonuses should also be deferred. In addition the report recommends greater pay transparency in the big banks by requiring public disclosure of the number of employees earning more than £1m, broken down by bands of pay.
(...)
“We need to get governance back to centre stage. Of course major regulatory issues need to be addressed to assure the soundness of the financial system but there will be significant downside if the regulatory pendulum swings too far. It could harm the ability of banks to provide customers with the financial services they need and lead to substantial increases in fees and charges. “Improved governance can play an important complementary role by instilling greater confidence in the way banks are being run by their boards and overseen by their owners. This should help regulators to strike the right balance.” The Walker Review proposes that most of the recommendations are enforced through inclusion in the Combined Code on Corporate Governance or a separate Stewardship Code for institutional investors, both operating on a ‘comply or explain’ basis. It would be for the Financial Reporting Council, which has been closely consulted and is currently reviewing the Combined Code, to decide exactly how this would be done. The FSA will consider how to take forward the recommendations applying principally to financial institutions. It is proposed that the recommendations on pay disclosure should be enforced through legislation in the forthcoming Financial Services Bill.
Specific recommendations in the report include:
- Active investors to sign up to a new independently-monitored Stewardship Code
- Financial Reporting Council to sponsor Stewardship Code
- FSA to monitor investor conformity with Code
- Chairman of board to face annual re-election
- Chairman of remuneration committee to face re-election if report gets less than 75% approval
- Most non-executives to spend substantially more time on the job
- Induction process for all non-executives and regular training
- Non-executives to face tougher scrutiny under FSA authorisation process
- Banks should have board level risk committees chaired by non-executive
- Risk committees to scrutinise and if necessary block big transactions
- Chief Risk Officer to have reporting line to risk committee
- Chief Risk Officer can only be sacked with agreement of board Remuneration committees
City bankers, beware of the dog called Final Recommendations!
Comments