UK corporate governance

Punish the banksters. That is the British public’s one-point agenda when it comes to financiers bailed out with loans, asset purchases, collateral swaps, guarantees, asset insurance and equity injections worth £1,300bn, equivalent to 90 per cent of gross domestic product. But there was never much prospect of vulgar banker bashing by Sir David Walker, the City veteran and Morgan Stanley adviser appointed by Prime Minister Gordon Brown to review the corporate governance of the UK’s banks and other institutions.

As fears intensify of a return to the status quo ante, Sir David has come up with a few sensible reforms. Having bank chairmen face annual re-election should help make boards more responsive to shareholders. Enhancing the authority of chief risk officers, pushing remuneration committees to review and disclose the pay of those making more than the median executive board member – albeit in an anonymised aggregated form, and greater concerted shareholder engagement with boards are all sensible proposals.

But Sir David’s primary focus is to ensure bankers gambling on go-for-broke strategies face greater boardroom challenges. Here he falls short. His willingness to sacrifice boardroom independence for experience could achieve the opposite. To allow boards to suspend the nine-year rule for non-executive directors, without expansion of the board to bring in fresh blood, has little to recommend it.

Turning a blind eye to bank chief executives becoming chairmen of the same institutions is also dangerous. Banks where this happened may have performed well in the crisis, with Standard Chartered a notable example. But one-off successes should not be the basis for a sectoral carve-out from the general rule.

Sir David’s refusal to be prescriptive could undermine the force of the Combined Code’s “comply or explain” principle. The arguments that chief executives should not ascend to the chairmanship are as strong in banking as other sectors.

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