“I’ll tell you about the banks. They are different from you and me.”
I misquote F Scott Fitzgerald to paraphrase Sir David Walker’s report on our financial institutions. But is he right? Aren’t the banks just companies that happen to deal in money? If so, why so they require special treatment?
Yes, banks are licensed, but so are pubs, taxis and airlines and no-one proposes special rules on how they are governed. And before you point out that a bank failure can be systemic, look at the components companies that are hit by the collapse of a motor manufacturer or see how a high-street becomes blighted when a major retailer like Woolworths closes.
Yet the key premise of Walker’s report is that banks are different and there must be special rules for running them.
In particular he wants non-executives to spend at least 30 or 36 days a year on bank business, and he wants them trained.
Ideally, he wants them to be bankers. He also wants them to chair risk committees and have the power to veto the executives’ decisions.
And Walker — a senior banker himself as well as an ex-regulator and former civil servant — wants bank chairmen to stand for re-election by shareholders every year and that the chair of the remuneration committee should stand for re-election if they are supported by under three-quarters of investors.As for those investors, they will be encouraged to sign a written memorandum of understanding so they can gang up on the board.
All that may have prevented the banking crisis but it is by no means certain.
It may also have stopped many useful innovations and expansions in banking because overcautious non-execs and shareholders interpret responsibility as restraint.
But if those are the ways to stop a bank going off the rails, why are they not also the correct practice for any quoted company?
Asking non-executive directors to devote so much time to their duties would further limit the supply of good candidates, and if the current crop of FTSE remuneration chairs had to have support from three quarters of investors, a large number would be up for re-election. Walker’s proposals might just put off even more able people from wanting to join boards.
The Combined Code on corporate governance is currently being rewritten and there are plans to incorporate Walker’s proposals. The temptation will be to allow governance creep to spread to other FTSE companies, making them general practice.
Hemingway’s response to Fitzgerald’s claim that the rich are different was, “Yes, they have more money”. If the banks still have more money it is because the taxpayers donated it, but it does not mean they are different. They are just publicly listed companies that handle finance. Their boardroom practices do not have to differ from those at other companies.
