Don’t treat the victims as villains
Why should ordinary companies be punished for the banks’ mistakes? Tough new corporate governance procedures designed to check failed financial institutions look like being extended to other businesses.
Just a fortnight after Sir David Walker published his draft proposals for keeping banks on the straight and narrow, the key recommendations have been cut and pasted into the review of the code on corporate governance produced by the Financial Reporting Council.
That means risk committees and annual re-elections by shareholders of the chairmen of the audit, remuneration and nomination committees. It could mean annual re-election of group chairmen too, plus training and development sessions for the non-execs with a call for them to work longer hours.
The chairman would be expected to become semi-full-time too – effectively preventing him or her holding another senior role and thus limiting their external experience. There are lots more requirements that will make many people wonder whether it is worth joining a board – and that’s before the recommendations on pay.
Walker’s report was only an interim document with the final not due until the autumn, but already it is being regarded as so certain his proposals can be incorporated into the FRC’s review of the code that applies to all companies.
There was always a danger that Walker would spread beyond the financial sector by stealth as governance fanatics and companies that already comply with some of his requirements adopt them and boast they meet “banking standards” – goading their corporate rivals to match them.
But now it looks as though Walker will be extended by compulsion, with his key points included in next year’s revised code. FRC has published its review and the debate seems only to be whether to apply Walker rules to a sub group, such as the FTSE 350 or FTSE 100, or to all quoted companies.
Banks subscribed in full to the current governance codes, especially the Higgs rules on boardroom balance. They stuffed their boards with independent non-executives to the point where they had more than 20 directors but executive bankers were excluded. They chose independent chairmen rather than promote former executives and threw out wise non-execs when they had done the nine years permitted.
But despite ticking all the boxes, big banks failed. Even if new rules are better than the old, why must a measure designed for failed banks be applied to successful businesses? Many companies are suffering from the financiers’ errors: making them swallow the banks’ medicine is to treat the victims as though they are the villains.
