On 26 November 2009, HM Treasury published Sir David Walker's final recommendations on corporate governance in UK banks and other financial institutions (BOFIs). These final recommendations were issued following a period of consultation which commenced in July 2009 with the publication of a consultation paper (see our July 2009 E-Bulletin article: HM Treasury publishes the Walker Report on corporate governance in UK banks).

The July 2009 consultation paper proposed a series of reforms to strengthen the role of shareholders, improve the quality of bank boards and increase the transparency of pay and bonus policies. Over 180 submissions were received in response to the consultation and there was widespread support for the analysis and draft recommendations set out in the paper. On the whole, the 39 recommendations set out in the consultation paper have been re-stated in the final Walker Report. However, a number of amendments and additions were made as a result of the consultation.

One of the principal changes to the recommendations concerns the issue of remuneration and the way in which affected entities should publicly report pay levels for certain employees. The final recommendations now apply not only to main board directors but also to certain other senior employees.

The final recommendations also recognise that significant differences may exist between various BOFIs. As a result, certain of the final recommendations apply only to FTSE 100-listed banks and life assurance companies. These include the recommendations relating to the time commitment of non-executive directors, the establishment of board risk committees and the disclosure of remuneration. Greater flexibility has also been built into certain of the recommendations, such as those dealing with board oversight of risk and the role and status of the chief risk officer.

A further significant change to the recommendations relates to the development and endorsement of the existing Code on the Responsibilities of Institutional Investors, prepared by the Institutional Shareholders' Committee, which sets out principles of best practice in stewardship for institutional investors and fund managers. The final recommendations propose that the FRC should ratify and oversee that code, which in future should be known as the Stewardship Code. The Stewardship Code would apply to institutional investors and fund managers on a "comply or explain" basis.

Implementation of the Walker Report recommendations will involve action by a number of different bodies, including the Government, the FRC and the FSA. The FRC has agreed to implement certain of the final recommendations as part of its proposed revisions to the Combined Code on Corporate Governance (see our January 2010 E-Bulletin article: Combined Code: FRC publishes consultation paper). Those recommendations will therefore apply to all listed companies (not just BOFIs). Certain recommendations will be implemented through revisions to other FRC guidance, such as the Turnbull Guidance on Internal Control and the best practice guidance set out in the Higgs Report. Other recommendations applying specifically to BOFIs will be implemented by the FSA, either in its general approach to supervision or through amendments to the FSA Handbook or FSA guidance. The only proposal for primary legislation relates to the mandatory disclosure of the remuneration of certain employees referred to above.

View the Walker Report (184 page pdf).