The corporate governance review led by Sir David Walker has recommended substantial changes to the way the boards of banks and other big financial institutions function in particular through boosting the role of non-executives in the risk and remuneration process.
The review has published a consultation paper that recommends the strengthening of bank boards, making rigorous challenge in the boardroom a key ingredient in decisions on risk and measures to encourage institutional shareholders to play a more active role as engaged owners of banks and other financial institutions. Members may access the paper by clicking on the link below:
http://www.hm-treasury.gov.uk/d/walker_review_consultation_160709.pdf
Specific proposals include:
- Board level risk committees chaired by a non-executive;
- Risk committees to have power to scrutinise and if necessary block big transactions;
- More power for remuneration committees to scrutinise firm-wide pay;
- Remuneration committee to oversee pay of high-paid executives not on the board;
- Significant deferred element in bonus schemes for all high-paid executives;
- Increased public disclosure about pay of high-paid executives;
- Chairman of remuneration committee to face re-election if report gets less than 75% approval;
- Non-executives to spend up to 50% more time on the job;
- Non-executives to face tougher scrutiny under the Financial Services Authority’s (FSA) authorisation process;
- Chairman of board to face annual re-election;
- Financial Reporting Council to sponsor institutional shareholder code;
- FSA to monitor conformity and disclosure by fund managers;
- Institutional shareholders to agree MOU on collective action ;
The consultation document proposes that most of the recommendations are enforced through inclusion in the Combined Code on Corporate Governance, which operates on a ‘comply or explain’ basis. It would be for the Financial Reporting Council, which is currently reviewing the Combined Code, to decide exactly how this would be done.
