City boardrooms face criticism
By politics.co.uk staff
The boards of UK banks were criticised today for their role in the financial crisis in a Treasury-commissioned report.
The review of corporate governance, conducted by former City regulator Sir David Walker, calls for better trained non-executive directors with more powers, and greater shareholder involvement.
It also recommends more transparent pay and bonus structures, criticising the way risk-taking was incentivised in the run-up to the crisis.
Sir David said: “It is clear that governance failures contributed materially to excessive risk- taking in the lead up to the financial crisis. Weaknesses in risk management, board quality and practice and control of remuneration need to be addressed.”
The report also stresses the need for banks to be run by bankers. Too many non-executive directors lack any actual banking experience and this renders problematic their responsibility to keep a close eye on the overall risks being taken by banks, it says.
The former head of Halifax Bank of Scotland (HBOS), Andy Hornby, came from a retail background, having previously headed up supermarket chain Asda.
HBOS was taken over by Lloyds TSB at the end of last year following massive losses from bad loans. The Lloyds Banking Group is now part-owned by the government.
Sir David also recommends that non-executive directors “should be expected to give a greater time commitment than has been normal in the past”.
The review calls for an extension of the remit of banks’ remuneration committees and recommends that all high earners’ pay should be disclosed.
There is currently no obligation for ‘star’ traders to disclose their bonuses to shareholders.
The bonus culture encouraged excessive short-term risk-taking at banks and is believed to have played a major part in the financial crisis.
There were concerns this week that the bonus culture is making a comeback after US banking giant Goldman Sachs announced it had set aside £4.1 billion for pay and bonuses between April and May.
The Walker Review comes as the Financial Service Authority (FSA) continues its inquiry into the banking crisis.
