Walker calls for overhaul of banking boards
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Sir David Walker has recommended overhauling the boards of banks and other big financial institutions by strengthening the role of non-executives and giving them new responsibilities to monitor risk and remuneration.
He also recommends a stewardship duty on institutional shareholders to play a more active role as owners of businesses.
The recommendations are contained in the final report of the Walker Review of Corporate Governance of UK banks and other financial institutions which was commissioned last February and delivered to the government this week.
Walker says: “The fundamental change needed is to make the boardroom a more challenging environment than it has often been in the past. This requires non-executives able to devote sufficient time to the role in order to assess risk and ask tough questions about strategy.
“Institutional investors should be less passive and prepared to engage earlier if they suspect weaknesses in governance. They enjoy the privilege of limited liability whereas taxpayers have ended up assuming unlimited liability in respect of the big banks. Early preventive medicine through shareholder engagement can save everyone substantial time and money later on.”
The Walker Review recommends extending the role of the remuneration committee to cover firm-wide remuneration policy as well as giving the committee direct responsibility for the pay of all highly-paid employees. At least half of variable pay or bonuses should be paid in the form of a long-term incentive scheme with half vesting after three years and the rest after five years. Two-thirds of cash bonuses should also be deferred.
In addition the report recommends greater pay transparency in the big banks by requiring public disclosure of the number of employees earning more than £1m, broken down by bands of pay.
He also recommends the chief risk officer to report to a risk committee and the sacking of a chief risk officer only sackable with agreement from the board.
And remuneration committees should disclose right of high-paid employees to receive enhanced benefits.
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