BANKING
ABI response to Walker Review
The Association of British Insurers has published its response to the Walker Review of corporate governance in the UK banking industry. The ABI wants tighter rules for pay consultants advising on executive remuneration because it says a draft code of conduct proposed by the firms is not “yet fit for purpose”.
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The Walker Review
The Chancellor of the Exchequer, the Secretary of State for Business, Enterprise and Regulatory Reform and the Financial Services Secretary to the Treasury asked Sir David Walker in February 2009 to conduct an independent review to recommend measures to improve the corporate governance of UK banks, particularly with regard to risk management but also remuneration. The terms of reference were extended so that the Walker Review also sought to identify where its recommendations are applicable to other financial institutions.
Published in July 2009, the consultation document – A Review of Corporate Governance in UK Banks and Other Financial Industry Entities – contained 39 separate recommendations dealing with Board size, composition and functions, the role of shareholders, governance and risk, and remuneration structures. Sir David Walker recommended substantial changes to the way the boards of banks and other big financial institutions function in particular through boosting the role of non-executives in the risk and remuneration process.
Specific proposals included:
--> A Review of Corporate Governance in UK Banks and Other Financial Industry Entities, published July 2009. To download the 138-page report in PDF format, visit: www.hm-treasury.gov.uk/d/walker_review_consultation_160709.pdf.
Walker Review recommendation 38: "The remuneration consultants involved in preparation of the draft code of conduct should form a professional body which would assume ownership of the definitive version of the code when consultation on the present draft is complete. The proposed professional body should provide access to the code through a web site with an indication of the consulting firms committed to it; and provide for review and adaptation of the code as required in the light of experience."
Walker Review recommendation 39: "The code and an indication of those committed to it should also be lodged on the FRC web site. In making an advisory appointment, remuneration committees should employ a consultant who has committed to the code."
The “best practice” guidelines put forward by seven leading pay consultancies have been designed to counter significant unease about the independence and quality of their advice. The draft code of conduct was signed by Deloitte, Hay Group, Hewitt New Bridge Street, Kepler, Mercer, Towers Perrin and Watson Wyatt and published as an annex in the Walker Review.
In its response ABI said:
“We believe a code for remuneration consultants would be useful, but we do not consider that the code is yet fit for purpose and have been disappointed by the failure of remuneration consultants to address conflicts of interest properly in their document. This leads us to a further conclusion that remuneration committees should have primary responsibility for hiring remuneration consultants and for their overall relationship with the company in a way analogous to audit committees and auditors.
“Companies should disclose fees paid to remuneration consultants as well as details of work done in another capacity for the company such as the provision of tax compliance or human resource consultancy.”
Want to know more?
Title: The Walker Review of Corporate Governance in UK banks and other Financial Entities: The ABI’s response, Association of British Insurers, October 2009.
Availability: To download the ABI’s response go to www.abi.org.uk/Media/Consultation_Papers/Consultation_Responses.aspx.
The Association of British Insurers represents the “collective interests of the UK’s insurance industry”. ABI member companies account for almost 20% of investments in the London stock market. To find out more visit www.abi.org.uk.