Walker Review – the missing link
The Walker Review closes for its initial public feedback at the end of next week. This independent review looks at corporate governance in the UK banking industry. Unsurprisingly, there are many who create a connection between the massive failures in the banking sector and an absence of corporate governance.
What is however surprising – at least to me – is the lack of focus on disclosure and reporting in the review. The Treasury website highlights 5 areas on which the review will dwell, but they do not include how the communication of governance should be enhanced. Why does this matter? Well, for one thing, much has been made of the role of institutional shareholders in engaging effectively with companies and monitoring of boards. But how can they monitor that which they cannot see?
The current reporting model is too dependent on the financial, technically complex, aspects of reporting, Narrative reporting on the non financial value drivers of the business has been subject to less intervention. Consequently too much short term focussed data is available, but not enough information.
Many companies take a largely compliance approach to governance reporting, However there are some great examples of good practice, which could be adopted more widely. For example, the reporting of some sub-committee activity to explain what issues the sub-committee has been dealing with over the year. There is a strong argument that the board should explain in broad terms the scope and nature of the issues that it has dealt with over the year.
Another example would be explanation of the how the board has got independent feedback on the overall board performance, discussion of the outcomes of the evaluation and what the board plans to do as a result. And of course, with executive compensation top of mind in this annual meeting season, transparency around how the Rem Comm works.
Whether good governance is working or not depends on many things, but an important indicator is the company's overall commitment to transparency and its ability to provide a coherent picture of key success factors for the company.
It would be good to see the Walker review include this in its thinking.
What is however surprising – at least to me – is the lack of focus on disclosure and reporting in the review. The Treasury website highlights 5 areas on which the review will dwell, but they do not include how the communication of governance should be enhanced. Why does this matter? Well, for one thing, much has been made of the role of institutional shareholders in engaging effectively with companies and monitoring of boards. But how can they monitor that which they cannot see?
The current reporting model is too dependent on the financial, technically complex, aspects of reporting, Narrative reporting on the non financial value drivers of the business has been subject to less intervention. Consequently too much short term focussed data is available, but not enough information.
Many companies take a largely compliance approach to governance reporting, However there are some great examples of good practice, which could be adopted more widely. For example, the reporting of some sub-committee activity to explain what issues the sub-committee has been dealing with over the year. There is a strong argument that the board should explain in broad terms the scope and nature of the issues that it has dealt with over the year.
Another example would be explanation of the how the board has got independent feedback on the overall board performance, discussion of the outcomes of the evaluation and what the board plans to do as a result. And of course, with executive compensation top of mind in this annual meeting season, transparency around how the Rem Comm works.
Whether good governance is working or not depends on many things, but an important indicator is the company's overall commitment to transparency and its ability to provide a coherent picture of key success factors for the company.
It would be good to see the Walker review include this in its thinking.
posted by Mark Hynes @ 12:37 pm
1 Comments:
At 5:00 pm,
Leigh Caldwell said…
Hi Mark
That's an interesting analysis. A colleague and I made a submission to the Walker Review last week - you can download it here if interested - and transparency was one of the key items we covered.
Admittedly our approach was a little more technical - with suggestions of a specific structure for revealing data, rather than the narrative approach you suggest. Your proposal is a good one as well.
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