Thursday, 26 November 2009

UK: the Walker Review of bank governance - final recommendations published

Sir David Walker has this morning published his final recommendations following his review of the governance of banks and other financial institutions. An overview is available in the accompanying press release. Amongst Sir David's 38 recommendations are the following:
  • Institutional shareholders to sign up to a Stewardship Code, sponsored by the Financial Reporting Council with compliance monitored by the Financial Services Authority (the Code on the Responsibilities of Institutional Investors prepared by the Institutional Shareholders’ Committee will become the Stewardship Code)
  • Annual re-election for the chairman of the board
  • The chairman of a major bank should be expected to commit a substantial proportion of his or her time, probably around two-thirds, to the business
  • An expanded role for the remuneration committee with regard to firm wide remuneration policy and "high end" employees
  • Disclosure, within remuneration bands, of the number of "high end" employees (including executive directors)
  • Deferral of incentive payments should provide the primary risk adjustment mechanism to align rewards with sustainable performance for executive board members and “high end” employees
  • If the remuneration report receives less than 75% of the votes cast the remuneration committee chair should stand for re-election in the following year
  • Greater expectations placed on non-executive directors regarding time commitment and tougher scrutiny by the Financial Services Authority
  • Banks should have a board level risk committee chaired by a non-executive director
  • The chief risk officer should have a reporting line to the risk committee and his or her removal should require board approval
Sir David proposes that most of his recommendations should be enforced through inclusion in the Combined Code on Corporate Governance or a separate Stewardship Code for institutional investors, both of which operate on a 'comply or explain' basis. The recommendations on pay disclosure will be included in the Financial Services Bill currently before Parliament.

Related video and audio resources: Sir David discussed his recommendations on the Radio 4 Today programme this morning: listen here. The BBC News website has a short video of Sir David discussing remuneration here. A video of Sir David's appearance before the Treasury Committee, where he was questioned on his review, appears here

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