The Walker Review

 

   The review of the UK’s financial sector corporate governance conducted by Sir David Walker on behalf of Gordon Brown and published today seems to be to include some sensible ideas to avoid further stupidity and recklessness in the country’s banks.

First up: strengthening the role and responsibilities of Non-Executive Directors – including better Board level performance evaluation (an area I spent some time working on around the time that the OFR and Business Review were being launched).

Secondly: encouraging more active shareholding (an issue I’ve followed as a long-time Fellow of the RSA, developing on from the Tomorrow’s Company project to its current work on Tomorrow’s Investor).

Thirdly: ensuring the way bankers are paid doesn’t further encourage stupid behaviours (something I’ve been blogging on quite a bit recently), for example by scrutinising and publishing the pay of anyone who earns more than the average board-level executive.  The report also recommends that half these peoples’ pay should be provided through a long-term incentive plan, with half of the LTIP vesting after three and the rest after five years.

 

I’ve already posted on my perspective that financial services HR departments are partly if not largely to blame for the banks’ failures and therefore our current economic miseries.  And here’s a great opportunity for them to put the situation right.

HR needs to step in and sure that NEDs have the right roles and the right training, and of course that their rewards systems and organisational cultures are effectively designed as well.

It’s 142 pages long, but the report should be required reading for everyone working in UK financial services and beyond.

 

Note though, I did think Robert Peston made a great point in his interview on the Today show this morning: RBS didn’t collapse after its take-over of ABN Amro because it wasn’t aware of the risks – it new what these were and thought they were worth taking:

“Even smart, well-qualified people can be gripped by irrational exuberance – we shouldn’t get gripped by the idea that governance offers a perfect protection against catastrophe.”

 

Perhaps guarding against irrational decision making is an even bigger opportunity for HR, and is one I’m going to posting again on shortly.

 

 

Technorati Tags: David Walker,A review of corporate governance in UK banks and other financial industry entities

 

 

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