Having spent most of Friday reading through it properly two things strike me. First, there isn't much discussion of the ideas sitting behind it. We were, in retrospect, spoilt by the Turner Review, which had a whole section on theoretical assumptions behind regulation (and market operation) in the past and now. Now I'm a bit of a geek, and like this stuff, but I do think it also serves a valuable purpose. For one, your understanding of how a system operates should help you identify what went wrong, and also what type of reform might be necessary to prevent it happening again. Secondly, you have these assumptions buried in your brain whether you like it or not. As Keynes famously said we're all under the spell of some defunct economist whether we're aware of it or not. Therefore taking a bit of time to explore the theory makes your assumptions explicit (including to yourself).
That leads me on to my second point. Although Walker does not spend any time exploring the underlying theory behind governance, the Review is actually shot through with a particular perspective. And to me it comes across as a very conservative/fatalistic mindset. There are several occasions where he (briefly) explores a reform suggestion, only to argue that it wouldn't make any difference, or would make things worse. The implication being that the system that we have has evolved into its current form because it broadly works, therefore taking things off in a new direction would be dangerous.
Now as a lefty clearly one of my basic assumptions is that things can be improved, and that we shouldn't just assume that what exists is 'natural'. But I am open to the idea that you have to think carefully about reform, and that often well-meaning initiatives can have unintended consequences. But - in my opinion - that should be a corrective to the way you approach reform, not, as I think many conservatives in all parties believe, a fundamental assumption in its own right.
A couple of examples. First, as I posted previously, Walker knocks back the idea of any kind of 'stakeholder' representation on banks boards. This was clearly quite a radical reform idea, and would have drawn fire if even taken forward as an issue on which comments were sought. Walker brushes it away with the argument (but no evidence) that this would disrupt the focus of directors on the job in hand (including focus on shareholder value one assumes). The implication is (excuse exaggeration) that any kind of stakeholder director would just take up the board's time asking if the annual report was being printed on recycled paper, rather than being interested in this serious banking business. I think that underestimates what such a post could bring to board discussions (and again makes unspoken assumptions about which stakeholders would be represented, how that representation would be achieved etc) but also contradicts earlier parts of the report where he defends the importance of NEDs with non-banking experience because they are less likely to fall into industry groupthink. The existing system works, don't mess with it.
Secondly he also knocks back the idea of making the vote on remuneration reports binding in some way by arguing that this would be difficult because contractual entitlements are involved. This is an argument that I've heard over the years from several sources including the conservative end of the investor community. But once again there is no evidence provided for why this would not work, it's taken as a given that this would be the case. The existing system works... Yet a couple of markets already have a binding vote on remuneration. Some investors in the UK - not just the usual activists - believe that something along these lines could be introduced. And theoretically it is easy to see that there is scope for change. After all votes approving (or not) incentive schemes are binding already. The issue just looks like it has been ducked.
I could go on (and on). The idea of greater disclosure of pay across the company given such short shrift (apparently because it's not a 'risk' issue it's not really what the review is about). The recommendation on directors' pensions is focused purely on one case that is unlikely to be repeated at the exclusion of several other genuine issues in terms of executive retirement provision. And the section on shareholder engagement doesn't require much more than best practice.
So where is the focus of reform? Effectively it's all on individuals, hence the need for more time commitments from NEDs and chairs, and more industry experience. And in fact in this area Walker argues that if it's a toss-up between experience and independence, go for the former, even if it tilts the balance of the board. Actually there is some sense here, but isn't it just stating the obvious, and wouldn't you expect bank boards to be taking these kinds of steps in any case now?
But more broadly this focus on individuals is more evidence of the sort of conservative fatalism I mentioned earlier. As the commonly heard argument goes, you can't legislate for good character. Therefore, by extension, you need to focus on getting the right people. Again there is a bit of truth here, but using this as your sole basis for framing governance reform looks increasingly weak the more we understand about how people and groups operate. Maybe this focus on dispositional factors is actually quite dangerous? Maybe we need to focus more on how groups interact and can fail to assess information effectively (something that affects all of us). Yet there isn't even reference (as far as I can see) to trying to explore the way that boards operate from a behavioural perspective. Not even to set up a straw man and knock it down.
Unfortunately Walker's failure to really probe what makes good governance has two significant implications. First, it makes it unlikely that the FRC will do anything radical with the Combined Code. Not that I was expecting it to, but clearly it will have an impact ('Walker already looked at this, there isn't an issue' etc). Secondly, and much more importantly, this was a big opportunity to reform governance. The banking system nearly failed, and the response is a bit more of the same. That reform opportunity is now probably gone. And looking ahead what scale of crisis will it require before a really fundamental review is undertaken?