Transcript Charles Cattell - Association of Financial Mutuals

CORPORATE GOVERNANCE
Regulatory expectations and
current good practice
Charles Cattell
The Cattellyst Consultancy
“Accidents don’t happen by accident!”
Concerns stemming from the crisis
• The nature of the
financial system
• Adequacy of capital and
liquidity
• Attention to risk
• Quality of governance
• Culture within firms
• The Walker Review
– A review of corporate
governance in UK banks
and other financial
industry entities
– Individual
– Collective
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Governance initiatives
Corporate
Governance Code
EC Green Paper
Following
Walker
Higgs Guidance
FSA - effective
governance
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UK Corporate Governance Code
Comply
or
explain
•
•
•
•
•
Leadership
Effectiveness
Accountability
Remuneration
Relations with shareholders
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Main principles - leadership
• Board is collectively responsible for long term
success
• Clear division between running the board and
running the business
• Chairman is responsible for leadership and ensuring
board effectiveness
• NEDs should constructively challenge and help
develop proposals on strategy
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Main principles - effectiveness
• Board and committees to have appropriate balance of skills,
experience, independence and knowledge of company
• Formal, rigorous and transparent procedure for appointing new
directors
• All directors should allocate sufficient time to discharge
responsibilities effectively
• All directors should be induced and regularly update/refresh
their skills and knowledge
• Board information to be supplied in a timely manner and
appropriate quality
• Formal and rigorous annual evaluation of board and individuals
• All directors should submit to regular re-election
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Main principles - accountability
• Present balanced and understandable assessment of
position and prospects
• Board to determine risk appetite and maintain risk
management and control systems
• Formal and transparent arrangements for applying
risk management and control principles and
maintaining relationship with auditors
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Main principles –
remuneration and shareholder relations
• Remuneration to attract and motivate directors of
required quality. Executive directors’ remuneration
to reflect corporate and individual performance
• Formal and transparent policies for fixing
remuneration
• Dialogue with shareholders based on mutual
understanding of objectives
• AGM should be used to communicate with investors
and encourage participation
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Improving Board Effectiveness
(Higgs Guidance )
• Roles
– Board
– Chair
– Senior independent
director
– Executive directors
– Non-executive directors
– Company secretary
• Decision-making
• Board composition
• Directors’ skill base
– Induction
– Development
• Evaluating performance
– Board
– Individual directors
• Communications
– Shareholder
– Other stakeholders
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EC Green Paper
Corporate governance in financial
institutions and remuneration policies
1.
2.
3.
4.
5.
6.
Boards of directors
Risk related functions
External auditors
Supervisory authorities
Shareholders
Effective implementation of corporate governance
principles
7. Remuneration
8. Conflicts of interest
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FSA – effective governance
The mighty
Handbook
More
principles-based
regulation
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Outcomesfocused regulation
Intensive, intrusive
12
FSA’s scrutiny of governance
• Practical effectiveness of board, management and
organisational structures
• Evidence of depth of discussion and understanding,
challenge and risk-based decision making
• Formulation of risk appetite and subsequent
monitoring of performance
• Quality of reporting and MI with evidence of
understanding and subsequent actions/feedback
• Approach to culture, incentives and remuneration
– Firms should understand their culture and the risks posed
by the wrong culture
– Regulatory focus on The
implications
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Approved Persons intensification
• Significant Influence Functions (SIFs)
– SIF approval process
• Thorough verification of suitability
• Greater proportion of pre-approval interviews
– Ongoing supervision of SIFs
– Competence and capability of SIFs in key roles
•
•
•
•
Chairman
Senior Independent Director
Chairs of committees
Finance, risk and internal audit functions
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What SIFs can expect
(on approval and at ARROW)
• Competence
proportionate for role
• Relevant technical
competencies
• Relevant non-technical
skills and behaviours
• Recognition of gaps and
willingness to address
them
• FSA will examine
– Awareness of
responsibilities of being
an Approved Person
– Understanding of role
and contribution in
managing risks
– Knowledge, skills and
experience
– Motivation and capacity
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“Intensive and intrusive” in practice
• Closer scruitiny of governance structure, business
model and effectiveness of risk management
• More enforcement action against senior
management for incompetence
• More demanding due diligence and greater challenge
to firms and individuals when appointing SIFs
• Increased granularity of Approved Persons regime
and greater clarity about competencies
• Enhanced training of FSA’s supervisory staff
• FOS stance now has strong consumer bias
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Any questions?
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Discussion points
1. What are the principal corporate governance
challenges faced by friendly societies?
2. How is the post-crisis corporate governance
agenda likely to impact on friendly societies?
3. What steps should societies take to ensure that
the members of their boards / committees of
management have appropriate skills,
knowledge and expertise?
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CORPORATE GOVERNANCE
Regulatory expectations and
current good practice
Charles Cattell
The Cattellyst Consultancy
01737 555515
07778 405239
[email protected]