Walker Review
The Walker Review
Sir David Walker was asked by the UK Chancellor to review Corporate Governance in UK Banks and other Financial Entities in light of the experience of critical loss and failure throughout the banking system. The recommendations of The Walker Review (2009) are expected to be followed throughout the corporate world as a matter of good corporate governance and not just applied to Banks and Other Financial Entities (BOFIs). It is widely hoped that they will be applied to non-UK entities as well.
We have taken various elements of the review and its conclusions and laid them out in a format that we hope will be helpful for companies to ascertain their next steps.
The Walker Review: Final Report
Published at the end of November 2009. Whilst there were no surprises and the press has largely focused on pay and risk there is a substantive amount on board development requirement in the final Walker Report. Some recomendations will be enshrined in law, others in the FSA's approach and rules, or as changes to the FRC Combined Code, but some will remain a matter of best practice.
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Sir David Walker:
"The behavioural changes that may be needed are unlikely to be fostered by regulatory fiat, which in any event risks provoking unintended consequences. Behavioural improvement is more likely to be achieved through clearer identification of best practice and more effective but, in most areas, non-statutory routes to implementation so that boards and their major owners feel 'ownership' of good corporate governance."
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Download the Walker Review Final Report here (pdf)
The key recommendations outlining board development needs are:
• a BOFI board should provide thematic business awareness sessions on a regular basis and each NED should be provided with a substantive personalised approach to induction, training and development... Will this always be appropriate to be conducted internally given the seniority of the NED? Perhaps not: " an externally-sourced programme may be appropriate," and each element must be assessed separately (Recommendation 1).
• the FSA's ongoing supervisory process for interviewing NEDs is being stepped up to ensure the necessary qualities of individual directors and their access to fully adequate induction and development programmes... "it would seem appropriate for the FSA process to set a somewhat higher bar and become more demanding...an interview process should become the norm and should involve questioning and assessment..." (Recommendations 4/5). Rather than wait for the FSA's opinion on your choice for a new NED use CTP Global's SIF interview preparation briefing service.
• the chairman's leadership skills are under the spotlight more than ever, "the vital chairman leadership skills, if not already demonstrable at the time of appointment, might not be as readily acquired..." (Recommendation 8). If you have a chairman in place expect the FSA to examine their leadership skills on the next visit, and if new to role or you're proposing to appoint someone new, some refined advanced leadership skills training should be on the agenda. See CTP Global's board leadership skills development.
• board evaluation received its expected coverage (Recommendation 12/13) but the key here is "that necessary actions have been or are being taken to remedy any material weaknesses identified in the evaluation process." Do board members need further development, team-work improvement or are any directors no longer suited to the role they were hired to fulfil? Using external help in this process provides objective input.
The Walker Review: Terms of Reference
The original terms of reference for the Review were to examine corporate governance in the UK banking industry and make recommendations, including in the following areas:
- The effectiveness of risk management at Board level, including the incentives in remuneration policy to manage risk effectively
- The balance of skills, experience and independence required on the Boards of UK banking institutions
- The effectiveness of Board practices and the performance of audit, risk, remuneration and nomination committees
- The role of institutional shareholders in engaging effectively with companies and monitoring of Boards
- Whether the UK approach is consistent with international practice and how national and international best practice can be promulgated.
The terms of reference were subsequently extended so that the Review also identified where its recommendations were applicable to other financial institutions.
The Walker Review: Executive summary and Recommendations
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Sir David Walker concluded that:
“it is clear that governance failures contributed materially
to excessive risk taking in the lead up to the financial crisis”
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The review process led to 39 recommendations (amended to 38 in the Final Report) along Five Key Themes:
- The Combined Code of the Financial Reporting Council (FRC) remains fit for purpose
- Principal deficiencies in BOFI Boards related much more to patterns of behaviour than to organisation
- Given that the core objective of a BOFI is the successful arbitrage of risk, board-level engagement in the high-level risk process should be materially increased
- Fund managers and other major shareholders need to engage more productively with their investee companies with the aim of supporting long-term improvement in performance
- Against a background of defective control and serious excess in some instances, substantial enhancement is needed in board level oversight of remuneration policies
click here for: Detailed Recommendations
- Board Size, composition and qualification
- Functioning of the board and evaluation of performance
- The Role of Institutional shareholders: communication and engagement
- Governance of risk
- Remuneration
Download the original full Review (pdf) here
Contact us at CTP Global to discuss your Board governance requirements now...
CTP Global - Good Governance: Great Performance
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