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99 Salz Review An Independent Review of Barclays’ Business Practices Andrew Bailey, then Managing Director of the Prudential Business Unit of the FSA 165 , has suggested that “if … there is a fundamental breakdown in trust, then the boards of these institutions have to recognise that trust has got to be got back and they have to think very hard about how they do that.” 166 The level of expectation placed on bank boards, particularly in terms of what can be accomplished by non-executive directors, is extremely high – perhaps unrealistically so. 9.6 The Barclays Board has explicitly recognised the need for change. Antony Jenkins announced the bank’s new purpose and values in January 2013, acknowledging that “unless we operate to the highest standards and our stakeholders trust us to behave with integrity, no business – and certainly no financial institution – can continue to be successful”. 167 9.7 It will be unhelpful if the ever-increasing expectations of bank board governance – driven by reviews, regulators, parliamentary enquiries and the media – deter those with the competencies and experience from offering to join bank boards. 9.8 Given the systemic importance of major banks, attracting the strongest and best qualified people to non-executive roles should be a concern to us all. Improving this may well require a change in attitudes, from broad acceptance of the limitations and realities of the non-executive role to improved collaboration between bank boards and regulators. Bank boards need experts on the banks’ specialist banking activities and they would also benefit from expertise in other important aspects of their business such as technology and retailing. Proposals currently under consideration to increase sanctions available against bank directors, over and above those generally applicable to directors, may deter candidates who do not at the outset understand specialist and complex banking areas and so find it difficult to assess the risks. 168 9.9 We have considered both the design and the effectiveness of governance at Barclays, concentrating on those areas where, in our judgment, change may have a meaningful impact on the Group’s future success in improving its business practices. In reviewing the written records of Board meetings, we found it difficult to gauge the extent of challenge and debate although minutes have provided a professional record of the major issues and decisions. Our conclusions therefore have been influenced by views expressed to us in interviews and may not necessarily represent the views of all Board members. 165 As of 1 April 2013, Deputy Governor for Prudential Regulation at the Bank of England, and Chief Executive of the Prudential Regulatory Authority. 166 Comments made on 28 June 2012, quoted widely in the press e.g., http://www.ft.com/cms/s/0/fb6e8350-c1e0-11e1-b76a-00144feabdc0.html. 167 Antony Jenkins, Email to Barclays staff, 17 January 2013 – widely quoted and reproduced in full in the New York Times: http://dealbook.nytimes.com/2013/01/17/new-barclays-chief-tells-staff-acceptchanges-or-leave/. 168 “[T]he crisis highlighted the important role that individuals – especially bank directors – play in the key decisions taken by banks – decisions which can have far-reaching consequences not just for the institution concerned or its customers but for Government, taxpayers and the wider economy. This wider impact of financial difficulties at banks makes them different from other companies and potentially justifies treating the directors and senior management of banks differently from those in other types of companies.” HM Treasury, Sanctions for the Directors of Failed Banks, July 2012.
Salz Review An Independent Review of Barclays’ Business Practices 100 Board Governance at Barclays 9.10 In some respects Barclays has been ahead of its peers in designing its Board governance framework. 169 For example, it established a separate Board Risk Committee more than 10 years ago, before most other banks and well before this was recommended by the Walker Review. It also conducted externally facilitated board evaluations annually (rather than every three years as contemplated in the UK Corporate Governance Code). It publishes its entire Corporate Governance Framework on its website – including Charters of Expectations for Board members, and Terms of Reference for all Board committees. 9.11 In addition, the Board made improvements to its governance design when issues were identified. For example, in 2010 it added a target that 50% of non-executive directors should have “banking and/or financial” 170 experience, reflecting a period where this had not been the case. In 2011 it set a target for 20% of the Board to be women by the end of 2013 (rising to 25% by 2015). Also in November 2011, after Marcus Agius had acknowledged the need for cultural change, it added to the Board’s Role and Responsibilities the statement that: “The Board, in order to be effective, should demonstrate ethical leadership and promote the company’s collective vision of the company’s purpose, values, culture and behaviours.” 171 9.12 Board committees play a crucial role in the effectiveness of Board governance and their role in banks has increased significantly in recent years. Committees allow nonexecutive directors to examine issues in more depth and with greater efficiency than at the full Board level. In 2012 the Barclays’ Board had six main board subcommittees: a Corporate Governance and Nominations Committee, an Audit Committee, a Risk Committee, a Remuneration Committee, a Finance Committee and a Citizenship Committee 172 – each chaired by the Chairman or a non-executive director. 173 9.13 Barclays’ Board is supported by the Barclays Corporate Secretariat. This comprises a total team of 27, of which 7 work primarily on agendas, papers, minutes and actions from the Board and committees and the writing of annual reports. The others deal primarily with the formalities of the many companies in the Barclays Group. 9.14 We do not conclude that the events which resulted in reputational and financial damage to the bank necessarily reflected poor Board governance. Good governance is demonstrated by decisions being arrived at after an open debate among a group of people who together have the necessary skills, experience and information. “Good governance increases the probability that good decisions will be made”, 174 but it does 169 See Appendix F. 170 Barclays Corporate Secretariat, “Corporate Governance in Barclays”, July 2012: http://group.barclays.com/about-barclays/about-us#corporate-governance/. 171 Papers presented to Barclays Board Corporate Governance & Nominations Committee, on 2 November 2011. 172 Recently renamed Board Conduct, Reputation and Operational Risk Committee. 173 The Finance Committee exists to approve specific decisions (e.g., M&A transactions), as authorised by the Board in each case. 174 FSA, “Delivering effective corporate governance: the financial regulator’s role”, speech by Hector Sants, 24 April 2012.
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Salz Review - April 2013
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