Below are a few thoughts on the final report of the Walker Review. I continue to think that the Review is a missed opportunity, and suffers by comparison to Adair Turner's report on financial regulation. It is very much positioned within mainstream industry opinion in my view. Many people will regard that as the right approach, but given then colossal scale of the crisis I think something a bit radical could have been attempted. Nonetheless it is well-written and well-argued and Walker has clearly stood his ground on many issues where there had been lobbying from vested interests, and in some places I think he has driven in some proposals that open up a bit of room for future reform.
Annual election of BOFI chairs - here Walker has stood his ground and taken an approach that crops up in other areas in respect of wider form, namely being vaguely supportive but not really pushing on. So the recommendation has been widened to encourage BOFI boards to review annual election for all directors, but they are not told to actually do it as best practice. And actually in the text around the recommendation some of the usual arguments against are rehearsed. Nonetheless it does open the door a bit further. I suspect that if shareholders collectively pushed on this at the banks it would be had for the boards to say no, and I'm not sure all of them actually think it's a bad idea.
Stewardship code - I'm not at all keen on the adoption of the ISC Code as the basis for the Stewardship Code because it's not a particularly stretching code in my view. But actually that probably isn't the important point. The key win is that the FRC gets to own the Code, and to review its operation. The ISC is no longer formally involved (which is a change from the initial recommendation). In addition in the section about how the FRC will assess progress Walker suggests that it takes over the IMA engagement survey (see 5.39). This is a great idea as although the IMA report is a good piece of work they do (understandably) spin the results. The claims on voting disclosure being particularly challengeable.
And what about voting disclosure? I set myself up to be disappointed and I am. He argues that the voluntary approach plus comply or explain should continue. This is simply pointless. If you accept that public disclosure of voting records is right in principle, as Walker does, all that voluntarism achieves is the absolute certainty that the market as a whole won't adhere. And as we know through the experience of the existing regime to date it will also allow the current practice of variable forms of disclosure which makes it very hard to do anything with the data. This much is well known - so this issue has simply been ducked. Gutted.
Pensions - the Fred Goodwin recommendation is expanded a bit to catch similar cases, but Walker doesn't address the glaring disparities between boardroom and shopfloor. Again this doesn't take any serious work to establish - just read a few annual reports. So another missed opportunity. I hope we can get some investor pressure around this issue, but I have no optimism about this given their failure to get stuck in previously.
I'll try and bung up some further thoughts over the next few days as I read the report properly. Having been disappointed by the initial Walker recommendations, today's report doesn't really surprise me. It's basically as expected. But I do wonder whether this will prove to be enough. For one, it's a big gamble on sticking with a shareholder-centric governance system, which may prove to be a big mistake if asset managers don't up their game. Second, I think we could yet see some real anger about remuneration practices. The whole policy debate - ie the actual policy proposals, not what people say in newspapers...! - has taken place within a theoretical framework which simply doesn't mesh with public opinion. The assumption of many is that the public don't get the arguments, and hence we have to make the right noises to cool the temperature but actually in practice do not need to fundamentally reform. I think this could be another dangerous assumption. The apparently quick return to business as usual in the City could yet threaten a sort of private sector legitimation crisis - that parallel with the position of the unions in the 70s keeps recurring...
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