Andrew Bailey, deputy governor of PRA, spoke on governance and the role of boards. He considered the role of boards in the broader setting of firms’ executive senior management, boards with non-executive directors (NEDs) in the majority, and supervisors. He concluded that:

  • there is no strong consensus on how to set boards’ expectations so that they can perform the role of setting firms’ strategy and risk appetite and overseeing implementation;
  • PRA expects boards to exercise good judgement in overseeing the running of the firm and to do so on a forward-looking basis. PRA believes that judgement is improved by facilitating explanation of complex matters and constructive challenge from non-executives. He said boards do not substitute the role of the Executive, and supervisors should challenge and can ask for change but cannot substitute either the board or the Executive; and
  • it is not the role of NEDs to be technical experts. The Executive should explain in simple and transparent terms key complex matters to NEDs. NEDs can then challenge the CEO and other Senior Executives on an informed basis.

He explained why PRA no longer interviews those taking up standard NED positions, and appreciates the need to take stock of the role of committees. He said that with a focused approach to what a board needs to understand, NEDs will be properly briefed, and Executives will not view NEDs as a form of threat. (Source:PRA Bailey – Governance and the Role of Boards)