ABI responds to Walker review
Responding to the Walker Review into Corporate Governance in UK banks and other financial industry entities released today, Peter Montagnon, the ABI’s Director of Investment Affairs, said:
“This is a well-balanced and useful report, in which Sir David has paid close attention to practical points made by respondents to his consultation. The result is a useful indicator of the way forward, though there are, of course, some areas where further thought is needed. It is very important that the overall conclusion is on the side of comply-or-explain, and against statutory regulation, on the way boards behave and how shareholders engage. We will do our best to deliver as investors.”
Role of shareholders
“Shareholders did not cause the crisis, but they recognise that they could be more effective in their dealings with companies. They have already taken steps to do so, notably through the recent publication by the Institutional Shareholders Committee of the first ever national code on investor responsibility.
“We are pleased that Sir David Walker is positive about the Code. The ISC is already taking further steps towards implementation. The ISC’s Chairman, Keith Skeoch, has now completed the formation of a committee to review its constitution and role. This Committee will meet in the coming weeks.
“The ABI values the suggested role for the Financial Reporting Council (FRC) in having oversight of the Code, provided this is handled correctly. We will need to talk to the FRC about this. Similarly, we accept the recommendation that the FSA could ask all authorised fund managers to disclose publicly whether they apply the Code. It is important that oversight of investors is not more onerous than that applied to companies.
“One of our principal objectives for the ISC Code is to build a critical mass of long term shareholders committed to a stewardship approach to owning shares in companies. The ABI notes there has already been positive interest in the new Code from shareholders in Europe and the US.”
Role of directors
“Sir David is right to identify issues around the role of Board members. We need to think carefully about the implications of creating two or even three classes of non-executive directors in terms of their roles, responsibilities, length of mandate and time commitments. If taken too far this could undermine the unitary board.
“In general we believe that the accountability of directors should be increased. This needs to happen in ways that make Boards more responsive to shareholder concerns and promotes better communication between Boards and shareholders. Sir David’s recommendations need to be considered alongside those due soon to be made by the Financial Reporting Council in its review of the Combined Code.”
Remuneration
“The recommendations around deferral and long performance periods go in the right direction, but we remain concerned about over -prescription and the danger that the UK may move too far away from international practice. Shareholders do not want banks to take excessive risks and remuneration should not encourage this, but banks must also be able to retain the talent needed to keep them competitive and generate long term value for the savers who invest in them.
“Reporting remuneration in pay bands is a sensible idea, and we fully support Sir David’s suggestion that this should include reference to the business activities which are attracting the highest rewards. This will help shareholders in their overall understanding of risk.”
Risk management
“Further consideration is needed on the nature of risk, the role of the risk committee and of the Chief Risk Officer. In particular, everybody needs to understand the fundamental difference between operational and strategic risk. The latter should always be a matter for the entire board.”
Scope
“This analysis derives almost entirely from experience in banking. We remain concerned at any automatic read across to non-banking firms such as insurers, whose business models are different from those of banks and who do not represent the same systemic risks. We welcome Sir David Walker’s recognition of the need to ensure proportionality in applying his recommendations.”
Notes
1. Enquiries to:
Jonathan French 020 7216 7392 (Mobile: 07958 330 480)
Malcolm Tarling 020 7216 7410 (Mobile: 07776 147 667)
Erfan Hussain 020 7216 7411 (Mobile: 07712 841 184)
Kelly Ostler-Coyle 020 7216 7415 (Mobile: 07968 364 302)
2. The ABI is the voice of the insurance and investment industry. Its members constitute over 90 per cent of the insurance market in the UK and 20 per cent across the EU. They control assets equivalent to a quarter of the UK’s capital. They are the risk managers of the UK’s economy and society. Through the ABI their voice is heard in Government and in public debate on insurance, savings and investment matters.
4. More news and information from the ABI is available www.abi.org.uk
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