Salz Review - Wall Street Journal

Salz Review
An Independent Review of Barclays’ Business Practices
98
9. Board Governance
Board Governance and Business Practices
9.1 “The purpose of corporate governance is to facilitate effective, entrepreneurial and
prudent management that can deliver the long-term success of the company. …
Corporate governance is therefore about what the board of a company does… and is
to be distinguished from the day to day operational management of the company by
full-time executives.” 160
9.2 “The board’s role is to provide entrepreneurial leadership of the company within a
framework of prudent and effective controls which enables risk to be assessed and
managed. The board should set the company’s strategic aims, ensure that the
necessary financial and human resources are in place for the company to meet its
objectives and review management performance. The board should set the
company’s values and standards and ensure that its obligations to its shareholders
and others are understood and met.” 161
9.3 Bank boards have additional responsibilities compared to those of other
organisations, primarily reflecting the risks associated with banking, the systemic
consequences of bank failure and regulatory requirements attempting to address
these and other risks, including protecting customers. More broadly, bank boards
need to be concerned that their banks enjoy high levels of public trust
and confidence.
9.4 Bank boards have attracted criticism for what went wrong in their banks in the
financial crisis, especially boards of banks that had to be rescued. As a recent
Financial Stability Board (FSB) report noted: “The crisis highlighted that many
boards had directors with little financial industry experience and limited
understanding of the rapidly increasing complexity of the institutions they were
leading. Too often, directors were unable to dedicate sufficient time to understand
the firm’s business model and too deferential to senior management.” 162 Barclays did
not fail and we believe that, among other things, this reflects some strong
engagement from its directors, who took a series of significant decisions in order to
avoid having to take direct support from the Government. But it came very close –
having to work hard, under considerable pressure, to persuade regulators that it was
strong enough to survive without Government support. There are therefore lessons
to be learned for the future, from looking back at Board governance and how it
might have impacted business practices. It is not, however, within our scope to
comment on the Group business strategy.
9.5 As we noted earlier, public trust in banks is at an all-time low. 163 Research suggests trust
in bank employees may be more resilient than trust in banks overall. 164 Nevertheless
160 Financial Reporting Council, The UK Corporate Governance Code, September 2012, p. 1.
161 Ibid., p. 8.
162 Financial Stability Board, Thematic Review of Risk Governance, February 2013, p. 1.
163 Which?, “Banks fail to learn lessons”, 2012.
164 Edelman, Trust Barometer, 2013.