Salz Review - Wall Street Journal

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115 Salz Review An Independent Review of Barclays’ Business Practices chaired by the Group Chairman with other non-executive representation. Its minutes went to Group ExCo and it was not formally constituted as a committee of the Board. 9.69 Barclays has recently announced a new Board Conduct, Reputation and Operational Risk Committee (CROR Committee) which will take over the responsibilities of the Citizenship Committee, and have oversight responsibility for these three areas of risk. The inclusion of conduct risk is a welcome step given the increasing regulatory focus in this area, and the importance of conduct risk as an indicator of other types of losses – e.g., poor documentation may hinder recoverability of bad loans. The CROR Committee should also provide greater clarity over the governance of risks associated with information systems and technology – risks that fall broadly under operational risk and deserve particular attention. 9.70 Barclays has taken steps to ensure that there is necessary coordination between Board committees, including some joint membership, sharing of papers and minutes and meetings involving the chairmen of the different committees. This includes the establishment of the Board Enterprise-Wide Risk Committee, made up of the Board Chairman and the Chairmen of the Board Risk, Audit and CROR Committees. We welcome this development. Recommendation 12: Board coordination The Board should ensure that there is effective coordination and collaboration between it and its principal Board committees, and between it and the subsidiary boards of those of its major Group businesses which are subject to their own regulatory requirements. In particular, it should consider holding joint meetings of Board committees. Recommendation 13: Board Committee for conduct, reputational and operational risk The Board should make clear which committees have primary oversight of conduct, reputational and operational risks across the Group. The terms of reference should make clear where the primary responsibilities lie for different aspects of operational risk, and where oversight of all financial and nonfinancial risks comes together. The terms of reference of these committees should also require a timely review of significant internal incidents, as well as of industry developments with high potential to impact Barclays’ reputation. Board Evaluations 9.71 There is increasing acceptance of the value of externally facilitated board evaluations as a component of best practice in corporate governance. The Walker Review considered imposing an annual requirement for such a review, before finally recommending external facilitation at least every three years – a recommendation
Salz Review An Independent Review of Barclays’ Business Practices 116 which was included in the UK Corporate Governance Code from 2010 onwards. The Code also requires that the annual report discloses “how performance evaluation of the board, its committees and its individual directors has been conducted”. 189 9.72 The purpose of any board evaluation should be to assist the board and individual directors in their process of continuing improvement and change though an open discussion. Recent Barclays’ Board evaluations were criticised by Sir David Walker before the Parliamentary Commission on Banking Standards as “not good enough” and lacking “tough external facilitation”. 190 We consider that the impact of a board evaluation will be determined by the quality of internal engagement in the process, the quality of dialogue about the findings and the commitment to follow-up actions. This should be led by the Chairman and, given Sir David Walker’s comments, no doubt the rigour of the evaluations will change considerably. High-quality external facilitation is an important aid to Board engagement, but it is not a substitute for that engagement. 9.73 The Board evaluations at Barclays since 2004 highlighted many issues for change, suggesting a good level of engagement. We found that they were focused on the quantitative outputs of surveys of members of the Board, examining changes in scores year-on-year, as well as individual interviews. The evaluations did not include observation of actual meetings, and did not separately evaluate information available to the Board or Board committees. The follow-on work tended to be delegated to the Corporate Secretariat without active ownership by the Board. Action plans recently appeared to have limited impact. For example, one of the lowest rated scores was given to the Group’s compensation strategy in nearly every evaluation but, difficult as the issue may have been, it did not lead to steps which materially improved the score. However, it should not be forgotten that the financial crisis imposed exceptional burdens on the Board and would have taken much of its attention. 9.74 The ABI has commended Barclays’ reporting of its evaluation process. Recently, it has recommended that companies go further in their disclosure of board evaluations: “Companies should explain the performance evaluation process and disclose any significant recommendations and the changes or improvements that the board has committed to following the review. We expect the outcomes of these evaluations to be different year-on-year.” 191 Barclays has followed the ABI’s recommendations detailing actions taken in respect of the prior year’s evaluation and describing themes for the coming year. We would encourage as much specificity as reasonably possible on the action plan so as to provide clarity when reporting on progress. Care will need to be taken to avoid non-executives feeling that they cannot be open and candid in the evaluation processes. 9.75 We consider board evaluations to be one element in a process where the board takes time to consider explicitly its own workings and effectiveness, and the changes required to improve them. Some companies, building on their board evaluation 189 Financial Reporting Council, UK Corporate Governance Code, 2012, p. 15. 190 Parliamentary Commission on Banking Standards, Corrected Transcript of Oral Evidence, HC606-xxxii, 5 February 2013. 191 Association of British Insurers, Report on Board Effectiveness, December 2012.
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Salz Review - April 2013
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Salz Review - Wall Street Journal

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