Walker review should pinpoint risk

November 25, 2009

pippacroney-Pippa Croney is a Director of JRBH Board Consulting. The opinions expressed are her own.-

Big bonuses have dominated headlines in recent weeks, and it is expected that David Walker’s review of corporate governance in British banks, due out on Thursday, will add fuel to the debate. While remuneration is likely to steal the limelight, deeper in the darkness lies a less emotive evil – risk.

Risks, particularly financial risks, have been taken by our most powerful organisations to a disconcerting degree – one that our current corporate governance system and non-executive directors were not able to control. So did non-executives fail to understand the scale of the risks involved, or did they not deem it their responsibility to challenge their respective boards?

Arguably both are to blame. Let’s first consider board directors’ understanding of the risks. Structural issues currently hamper non-executive director’s access to information.  Non-execs are not super-human, but they are set with a phenomenal task – to supervise these vast multinationals with little support, limited capacity and restricted resources, relying almost exclusively on information provided by the executive. It is like trying to gauge the severity of an upcoming volcanic eruption with a thermometer.

And setting aside these structural constraints how accountable and responsible do non-executives feel? One of the things we hear most commonly is that it is not a non-executive’s job to second-guess the executive; they are part of a united body which they are not there to unsettle.

Culturally there is a perception that non-execs feel actively discouraged from challenging decisions – that it is seen as a form of betrayal. But boardrooms need to cultivate curiosity and an environment in which challenge is encouraged. If directors wont question the executive on behalf of the shareholders, who will?

For the Walker Review to tackle the issue of risk, the cultural and structural obstacles need to be addressed. In a stronger, more effective corporate governance structure, non-execs will be revered: not because of their past accolades but because they have the strength and the understanding to stand up to the Board, promoting the best interests of shareholders  and stewarding our most powerful organisations to future success.

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