Walker Report: Banks Risk Carbon Copy Non-Execs

Last Updated Nov 29, 2009 8:02 PM EST

As the UK finance industry ponders the repercussions of Sir David Walker's report on the banking sector, much has been made of proposals to declare the number of employees paid 1m or above. While this is an emotive issue that provides for great headlines, it's likely this measure will have little impact on the growth or collapse of the UK financial sector.

Speaking to Chizu Nakajima, director for finance regulation and crime at Cass Business School and Charles Cotton, performance and rewards advisor for the CIPD, it's plain they are worried the Walker report concentrates too heavily on remuneration and does little to address the underlying problems with the sector. These problems, they maintain, are around corporate culture and talent management.

One of the main recommendations of the report is a requirement for Non Executive Directors (NEDs) to have direct banking experience. Nakajima points out how limiting this could be for board selection committees.

She said: "If you have that degree of relevant experience, surely you would rather be working for the organisation, not an NED for it."

Certainly, it's likely that a requirement of a high degree of relevant finance experience will reduce the pool of potential NEDs that selectors can recruit from. Pundits have often lamented the amount of NEDs companies across UK plc have on their boards and the risk that puts on good corporate governance.

Reducing that pool by upping the qualification requirement is going to increase that risk, not reduce it.

The call for Banking NEDs to have a long track-record in the sector also undermines their role as a balance and complement to the executive directors. It takes a sense of perspective gained by experience out of the sector to be able to pick out the anomalies in banking. A board made up of people who have accepted and profited from the conventions of the industry is less likely to identify their weaknesses.

However, no-one is suggesting NEDs don't need an understanding of the industry they are employed in. As financial sectors have become more complex, it's as critical as ever for banking business leaders to have a firm grasp on the business models they are employing - including the ones who have backgrounds in that sector.

Cotton said: "The review ramps up the responsibilities on NEDs. It is essential that significant effort is put into learning and development programmes for NEDs, so they acquire and maintain the skills, knowledge and attitudes required to fulfil their expanded roles effectively."

(Pic: luxamart cc2.0)