WALKER REVIEW: ALL THE POINTS AT A GLANCE
BOARD SIZE, COMPOSITION AND QUALIFICATION
1. Non-executive directors at banks or other financial institutions will need to go on training programmes.
2. The board should provide non-execs with extra support on appropriate issues as and when needed.
3. Non-execs at a FTSE 100-listed bank or life assurance company should give more time to their roles. Several non-execs will be required to commit between 30 and 36 days a year. This commitment should be indicated in letters of appointment.
4. The FSA’s vetting process should give closer attention to the balance of the board, taking into account the experience of its members.
5. When the FSA interviews a proposed non-exec, the candidate should be assessed by a senior adviser with relevant industry experience.
6. Non-execs should be ready and able to challenge the executive management on strategy.
FUNCTIONING OF THE BOARD AND EVALUATION OF PERFORMANCE
7. The chairman of a major bank should be expected to commit a substantial proportion of time – probably around two thirds – and should prioritise the role over all others.
8. The chairman should have a combination of financial industry experience and a proven track record of leading a board.
9. Chairmen must lead their boards and foster an environment where there is constant discussion of a bank’s strategy.
10. The chairman should be put up for re-election on an annual basis. Boards should consider annually electing all members.
11. Senior independent directors should provide a sounding board for the chairman. They should act as an intermediary between the chair and shareholders if communication breaks down.
12. Board performance should be evaluated externally every second or third year, and the findings should be included in the annual report.
13. The evaluation statement should explain what techniques have been used to assess the skills and experience of the board.
THE ROLE OF INSTITUTIONAL SHAREHOLDERS
14. Boards should be made aware of any meaningful changes in the share register as soon as possible, and inform the FSA if appropriate.
15. Strangely, this mystery recommendation was not included in the final report.
16. The Financial Reporting Council (FRC) should oversee stewardship of institutional investors and fund managers. The existing Combined Code should be split into a Corporate Governance Code and a Stewardship Code.
17. Institutional investors should observe the Stewardship Code on a “comply or explain” basis.
18. All fund managers that comply with the code should participate in a survey to monitor their adherence.
19. Fund managers and other institutions authorised to undertake investment business should indicate on their website whether they commit to the Stewardship Code. If they do not, they should explain why.
20. The FSA should require institutions that are authorised to manage the assets of others to disclose whether they commit to the code.
21. Institutional investors and fund managers should club together and become more active to improve results for their clients.
22. Fund managers and institutional investors should vote regularly, and disclose their record.
GOVERNANCE OF RISK
23. FTSE-100 banks and life insurance firms should establish a board risk committee that is separate from the audit committee.
24. A board should be served by a chief risk officer (CRO) that is involved in risk management and oversight at the highest level. The CRO should report to the risk committee and have direct access to its chair. The board must agree to the CRO’s removal
25. The risk committee should seek external input.
26. The risk committee should advise on acquisitions and disposals.
27. The risk committee report should be included in the annual report and accounts.
REMUNERATION
28. The remuneration committee should ensure that the firm’s approach to pay and conditions is coherent in respect of all employees.
29. The remuneration committee should oversee the pay of all “high end” employees.
30. The remuneration committee report should confirm it is satisfied with the way that performance objectives and risk adjustments are reflected in compensation structures.
31. From fiscal 2010, FTSE 100 banks and comparable institutions should disclose in bands their numbers of “high end” employees. The bands will range from £1m to £2.5m, £2.5m to £5m, and will go up in £5m bands thereafter. They will include salary, cash bonus, deferred shares, performance-related long-term awards and pension contribution.
32. FSA-authorised banks that are UK-domiciled subsidiaries of non-resident companies should do the same.
33. Incentive payments should be deferred, in line with the FSA Remuneration Code. At least one half of a year’s variable remuneration should be in the form of a long-term incentive scheme. One half of the scheme should only vest after three years, the other after five. Short term bonuses should be paid over a three year period, with no more than one-third paid in the first year. Clawback should be used to reclaim pay in the event of misconduct.
34. “High end” employees should maintain a shareholding, to be built up at the discretion of the remuneration committee. This stock should not be vested on cessation of employment.
35. The remuneration committee should seek advice from the board risk committee on risk adjustments to remuneration.
36. If the non-binding resolution of a remuneration committee attracts less than 75 per cent of total votes cast, the chairman of the committee should stand for re-election in the following year.
37. The remuneration committee should state whether any “high end” employee has the right to enhanced benefits beyond those already disclosed.
38. There should be a Remuneration Consultants Code that is used for determining contractual terms and pay.