Counterparties: Britain’s toughest board

By Ben Walsh
August 10, 2012

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Barclays has a new centurion: David Walker will take over from Marcus Agius as Barclays chairman on November 1. Walker is a former regulator who served in the UK Treasury and Bank of England. That background will give Walker’s credibility as he tries to overhaul the bank’s culture, operations and reputation in the wake of the Libor scandal.

As lead author of the eponymous 2009 report on corporate governance at UK banks, Walker has already committed to the standards he – and other board members – should act on:

The most critical need is for an environment in which effective challenge of the executive is expected and achieved in the boardroom before decisions are taken on major risk and strategic issues. For this to be achieved will require close attention to board composition to ensure the right mix of both financial industry capability and critical perspective from high-level experience in other major business. It will also require a materially increased time commitment from non-executive directors… In all of this, the role of the chairman is paramount, calling for both exceptional board leadership skills and ability to get confidently and competently to grips with major strategic issues. With so substantial an expectation and obligation, the chairman’s role will involve a priority of commitment that will leave little time for other business activity.

So far, Walker is following his own advice by committing to work a minimum of four days a week as chairman. Anything short of full-time may sound slight, but none of his peers have made their time commitment similarly transparent nor can credibly argue that theirs is greater. For that work, he’ll receive £750,000 ($1.17 million), of which £100,000 will be in Barclays stock.

Additional transparency may be coming to Barclays in other forms, as well: the Walker report called for disclosure of the number of employees earning more than £1 million in salary and bonus and a tally of those “earning between £1m and £2.5m; £2.5m and £5m; and over £5m”. Walker also called for the head of the board’s pay committee to automatically face re-election if their proposals are supported by less than 75% of shareholders.

Walker also thinks boards should hear directly from risk officers, and should have final say over their hiring and firing. He wants the chief risk officer to report to other executives, but the CRO also “should report to the board risk committee, with direct access to the chairman of the committee”.

These and Walker’s many other recommendations add up to a view of the relationship between the chairman and the CEO at financial institutions very different from what we’ve recently seen. UK board oversight is on the whole more rigorous than in the US, and the chairman and CEO roles are invariably separate. It’s hard to imagine Jamie Dimon working under Walker’s structure. In Walker’s view, chief executives cannot be allowed to become indispensable or inscrutable: “If the embedding of authority… makes the CEO become effectively unchallengeable (and possibly a control freak), the CEO will be a major source of risk and will probably need to be removed”. That should make for some interesting interviews as Walker takes up his first prominent task, finding a new CEO. – Ben Walsh

On to today’s links:

Politicking
Carl Levin is still not happy with Goldman Sachs – Politico
Will Erskine Bowles be our next Treasury Secretary? – Ezra Klein

Indicators
“Fresh data suggest key sectors of the economy might be gaining traction” or not – WaPo

The More You Know
Valuing the priceless: EPA would spend $9.1 million to save a life, while FDA feels $7.9 million is more appropriate – Care 2

You Are a Snowflake
The latest in coupons: perfectly legal personalized price discimination – NYT

Primary Sources
A very sensible set of proposed rules for mortgage servicers, including warnings to borrowers over rate hikes – CFPB

Alpha
Ex-Goldman programmer arrested again and charged by New York State for downloading “secret sauce” trading code – DealBook
Profit margins are “at unsustainable levels”, and corporate earnings might be too – The Big Picture

J’Regulate
Emile Zola, 1891: “the public is fooled and ruined by the brigands of Finance” – Liberty Street Economics

Legalese
Standard Chartered’s lawyers: from cost center to profit-seekers – FT

Oxpeckers
Writer critical of writers writing on writing – Salon
Time Magazine suspends Fareed Zakaria for a month over plagiarism – NYT

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