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Jul 16, 2009

Walker puts politics into banking

LONDON, July 16 (Reuters) – As befits a former senior civil servant, David Walker has produced a review of governance of British financial institutions that is acutely tuned to political sensitivities. His proposals would make banks more bureaucratic and more regulated, while bankers’ pay will be more open. In short, they will be treated more like the arms of the state that they have become.
Bankers will groan at the 39 draft recommendations for improving their performance, but they have received, one way and another, 1.3 trillion pounds of taxpayer support, or over 20,000 pounds for every man, woman and child in the land.
This alone justifies Walker’s proposals of a more intrusive and prescriptive approach to pay, even though he admits that pay was the least of the many causes of the financial crisis.
Less emotive, but more important, are his proposals on boards and shareholders, whom he clearly feels are the unspoken villains of the piece. Chairmen would become serious figures in financial institutions, responsible for holding dominant chief executives to account. With the enhanced scope of this role, it is unlikely they could do much else, even to chair another (non bank) company.
Non-executives, too, should expect the job to become part-time employment, with training, support and external advice. This would mean the end of the politically-correct drive towards diversity. Conveniently for him, Walker says he has no interest in such agendas. He prefers to push for proper risk committees, taking a view on the macroeconomic environment as described, for example, in Bank of England reports,.
Walker is scathing about shareholders, whom he views as complicit at best and responsible, at worst, for the excesses of the boom- as he asks, who demanded all those share buybacks? He wants fund managers to commit to “principles of stewardship”, with a requirement to “engage” with managers at the companies they own.
He’d also like to see a change in board culture, whatever that may mean. This, like his other proposals, sounds sensible, but is mostly wishful thinking. That there is something rotten in the way we do banking in the early 21st century is beyond doubt, but this report, however well-meaning, doesn’t take us any nearer to curing the disease.

    • About Margaret

      "Margaret Doyle is a Reuters Breakingviews columnist, based in London. She writes about investment banking. She has been a journalist for over 14 years. She has written for The Daily Telegraph and The Economist and presented various radio programmes for the BBC. She began her career as a consultant at McKinsey & Co. She has an economics degree from Trinity College, Dublin and an MBA from Harvard Business School, which she attended as a Fulbright scholar. She is a Conservative Member of Westminster City Council."
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