UK: Governance In Brief - Your Summary Of The Latest Corporate Governance, February 2009

Governance of UK banks to be subject to an independent review

In Brief: HM Treasury has announced a review to recommend measures to improve

the corporate governance of UK banks, particularly with regard to risk management. The review is being chaired by the former financial services regulator, Sir David Walker.

It will examine board management of risk (including the effectiveness of risk and audit committees), incentives to manage risk in bank remuneration policies, the competencies needed on bank boards, board practices and structures, and the role played by institutional shareholders. The review will give preliminary conclusions to commissioning Ministers in the autumn and final recommendations by the end of the year.

The Chancellor of the Exchequer believes it is clear that the corporate governance of the banks should have been far more effective in holding bank executives to account. The commitment and effectiveness of investors will also be reviewed.

The terms of reference for the review are:

• to examine corporate governance in the UK banking industry and make recommendations, including in the following areas:
• the effectiveness of risk management at board level, including the incentives in remuneration policy to manage risk effectively;
• the balance of skills, experience and independence required on the boards of UK banking institutions;
• the effectiveness of board practices and the performance of audit, risk, remuneration and nomination committees;
• the role of institutional shareholders in engaging effectively with companies and monitoring of boards; and
• whether the UK approach is consistent with international practice and how national and international best practice can be promulgated.

Date: 9 February 2009

Source: HM Treasury

Further info: http://www.hm-treasury.gov.uk/press_10_09.htm

• Governance of UK banks to be subject to an independent review.

• Head of FRC urges caution over calls for overhaul of the Combined Code.

Head of FRC urges caution over calls for overhaul of the Combined Code

In Brief: Paul Boyle, Chief Executive of the FRC, believes that the current regulatory challenge is how best to bring about improvements in the performance of boards. In particular, how to improve the decisionmaking and behaviours of individual directors, most of who will never have any contact with the regulator.

Speaking at the London Stock Exchange 2009 corporate governance conference Mr Boyle said that he hoped that "expressing the regulatory challenge in this way will give pause for thought to those who call for increased regulation. This is not to say that there are no possible improvements to the regulatory regime; it is simply to encourage careful reflection before coming to judgements in this area."

Mr Boyle also commented on the recent discovery of a number of high profile cases of alleged fraud and said "It seems to us that directors, particularly audit committee members, and internal and external auditors should heighten their alertness to the possibility of fraud and ensure that suspicions are followed up."

Mr Boyle's speech highlighted the role of institutional investors in the monitoring and enforcement of standards of corporate governance. He said "If the UK system of corporate governance is to be sustained then it is essential that a sufficient number and weight of institutional shareholders demonstrate a willingness and a capability to live up to those responsibilities."

The FRC will provide further details in March on its corporate governance work-plans for the coming year, including whether it will accelerate the next review of the Code.

Date: 25 February 2009

Source: Financial Reporting Council

Further info: http://www.frc.org.uk/press/pub1878.html

• If not already done, review current governance practices and be satisfied they will stand up to scrutiny – in particular focus on the effectiveness of risk management frameworks, anti-fraud controls, remuneration policies and engagement with shareholders.

• Publication of Lord Turner's review of banking regulation.

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