On July 16, British banker Sir David Walker published a report entitled "A review of corporate governance in UK banks and other financial industry entities." The report was requested by U.K. Prime Minister Gordon Brown this past February, in order to provide an independent review and examination of corporate governance in the U.K. banking industry and make recommendations, specifically 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 U.K. 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; and
- whether the U.K. approach is consistent with international practice and how national and international best practice can be promulgated.
Mr. Walker's report sets forth a list of draft recommendation, "proposed as best practice on the view that their adoption will benefit" banks and other financial institutions, their shareholders and the wider public interest, and were "developed with particular focus on UK-listed entities." The report has been prepared with "substantial" input from "several interested parties," including executive and non-executive board members of banks and other corporate entities, as well as accounting and legal professionals. According to Mr. Walker, the current emphasis of the report was "on reaching main conclusions and recommendations," thereby provoking "responses and further discussions" during a second consultation period ending October 1, 2009. Following that consultation period, Mr. Walker will issue a final version of the report in November.
A brief summary of several of the report's specific proposals include:
- Board level risk committees should be chaired by a non-executive;
- Risk committees should have the power to scrutinize and if necessary block big transactions;
- Remuneration committees should have increased power to scrutinize firm-wide pay;
- Remuneration committees should oversee pay of high-paid executives not on the board;
- All high-paid executive should have a significant deferred element as part of their bonus schemes;
- There should be increased public disclosure about pay of high-paid executives;
- Chairmen of remuneration committees should face re-election if the committee's report gets less than 75% approval from shareholders;
- Non-executives should face tougher scrutiny under FSA's authorization process;
- Chairmen of the board should be re-elected annually;
- Financial Reporting Council should sponsor the creation of an institutional shareholder code;
- FSA should monitor conformity and disclosure by fund managers.
The methodology for best implementing the report's conclusions and recommendations, within the respective roles and responsibilities of the U.K. government, Financial Reporting Council and the Combined Code on Corporate Governance, will be determined following the second consultation period.