Salz Review - Wall Street Journal

Salz Review
An Independent Review of Barclays’ Business Practices
102
Foundations of Challenge
9.17 A role of the board is to provide ‘challenge’ to the actions of management. Sir David
Walker explained this to the Parliamentary Commission on Banking Standards as the
combination of the quality of individuals and their interaction: “The test is not only
the quality of the individuals but the board dynamic – what happens in the
boardroom – and if you don’t have the right dynamic, however good the people are,
you won’t have the right challenge.” 175 In addition to the quality of people and as
contributors to the board dynamic, we would add the overall composition of the
board and their understanding as a group of the bank’s businesses, the time nonexecutives
have to give, the openness of the executive directors and the information
available to the board.
9.18 We make reference a number of times in this section to the Walker Review. This
made recommendations for the corporate governance in UK banks. It was published
in 2009 in response to the banking crisis. We draw on it because it is the most
comprehensive review of this nature since the crisis with a focus on UK-based banks
such as Barclays, rather than because of Sir David Walker’s position as Chairman of
Barclays. In some areas our Review suggests developments on Sir David Walker’s
suggestions, based on the evidence gathered in our Review.
9.19 The Walker Review outlined how the “principal deficiencies in [bank] boards related
much more to patterns of behaviour than to organisation”. 176 It went on to explain
that: “The pressure for conformity on boards can be strong, generating
corresponding difficulty for an individual board member who wishes to challenge
group thinking. Such challenge on substantive policy issues can be seen as disruptive,
non-collegial and even as disloyal. Yet, without it, there can be an illusion of
unanimity in a board, with silence assumed to be acquiescence (…) Critically relevant
to success of the challenge process in any well-functioning board will be the
demeanour and capability of the CEO, who is unlikely to be in the role without
having displayed qualities of competence and toughness which are not dependably
tolerant of challenge. Even a strong and established CEO may have a degree of
concern, if not resentment, that challenge from the NEDs is unproductively timeconsuming,
adding little or no value, and might intrude on or constrain the ability of
the executive team to implement the agreed strategy. Equally, however, the greater
the entrenchment of the CEO, perhaps partly on the basis of excellent past
performance and longevity in the role, the greater is likely to be the risk of CEO
hubris or arrogance and, in consequence, the greater the importance (and, quite
likely, difficulty) of NED challenge. Achieving an appropriate balance among
potentially conflicting concerns is frequently the most difficult part of the overall
functioning of the board.” 177
9.20 Responsibility clearly rests with the Chairman for sorting this out, including the
engagement with the Chief Executive. He or she has to develop the atmosphere in
175 Parliamentary Commission on Banking Standards, Corrected transcript of oral evidence, 5 February 2013, p. 4.
176 Sir David Walker, A Review of Corporate Governance in UK Banks and other Financial Industry Entities – Final
Recommendations, 26 November 2009, p. 12; all references to the ‘Walker Review’ are from the Financial
Recommendations, except when indicated otherwise.
177 Sir David Walker, A Review of Corporate Governance in UK Banks, pp. 53-4.