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Walker addresses symptoms and not causes of banking governance failures, says ACCA
The Walker Review into corporate governance failures in the UK banking sector addresses the symptoms and not the root cause of those failures and will do little to change dysfunctional behaviour, ACCA (the Association of Chartered Certified Accountants) has claimed in its response to the consultation.
ACCA believes that the 39 recommendations in the review will not tackle the problem, since they are based on a wrong assumption that shareholders can and will provide sufficient influence over corporate boards to ensure good governance.
“The recent crisis in the banks has demonstrated that while some shareholders had influence, they either did not or could not enforce good governance behaviour. ACCA believes that the recommendations alone will do little to enhance the ability of shareholders to influence boards and there needs to be other triggers to change behaviour,” said Dr Steve Priddy, ACCA’s Director of Technical Policy and Research.
“Instead we believe the starting point for any review of governance should be to answer the question, ‘What do banks or other financial institutions do, or what should they do?’ and then to consider what governance system would help them to meet their objectives” said Steve Priddy.
ACCA is disappointed that the terms of reference of the review are so narrow that it accepts the present uncompetitive structure of banking in the UK and that nothing more radical is being proposed to shake up the current system.
“The financial crisis has highlighted that our present corporate governance system has been found wanting. As far as much of the banking sector is concerned – certainly in the UK and US and certain other jurisdictions, reforms after Enron and WorldCom have not improved risk management, have not ensured that non executive directors provided the necessary challenge or that shareholders can hold boards to account. What is needed is a more analytical approach to understanding what works, what does not work and why. It is important to know what the governance system would look like when it is fixed. This requires a willingness to take a fresh look at governance rather than the incremental approach which has characterised code development post Cadbury.
ACCA also disagrees with the Review that ‘the core objective of a bank or other financial institution is the successful arbitrage of risk’.
“Surely the core objective of a bank is to take deposits from actual and legal persons, and to make loans available to actual and legal persons? If the banking system is to continue to rely either on actual, or just the promise of, taxpayer support, then banks’ purpose must include an ethical responsibility to society; governance systems for banks should aim to ensure this requirement is met,” said Steve Priddy.
For further information please contact:
Colin Davis, ACCA Newsroom +44 (0)20 7059 5738 +44 (0)7720 347713 colin.davis@accaglobal.com