Beasts of even more burden

You FDs have a really tough time as far as corporate governance is concerned.
We all know that nearly 40% of FDs leave their jobs within the first 18 months
and one of the key reasons for this is the growing burden of corporate
governance.

We have seen the final recommendations of Sir David Walker on governance for
banks and other financial institutions (BOFIs). Within days of this, Sir Chris
Hogg introduced proposed changes to the FRC’s governance code for listed
companies. The Walker recommendations will be implemented predominantly by the
FSA through its supervising processes and amendment of its handbook provisions.
Both proposals require further consultation and we won’t get the final versions
until April or May , but few further changes are expected.

So what does it all mean from the FD’s perspective? The answer is, as the TV
meercat says, “simples”: more challenge and more work.

For BOFI FDs this will involve having to deal with more experienced non
executive directors; dealing with a chief risk officer and a NED-based risk
committee; more linkage between pay and risk; and increased preparation prior to
visits by regulators.

For FDs of listed companies (non-BOFIs – I do like that acronym), this may
result in each director being subject to annual election at the AGM; an
externally facilitated board evaluation every three years; and tougher
remuneration policies, including even more stretching performance-related
elements, remuneration incentives compatible with risk policies and the criteria
for paying bonuses being risk adjusted.

So what should be the top priority for the FD? It’s business model, business
model, business model. The annual reports of listed companies will have to
include a description of the business model and the financial strategy relating
to it. FDs are really going to have to think about these disclosures and
descriptions, as boilerplate text will be chastised as being dead words.

The main message is that new-style governance is less about box-ticking and
more about applying the spirit of the code. Congratulations should go to both
Sir David and Sir Chris for reminding us of this and of the importance of
meaningful board focus. So hopefully this will not be such a great additional
burden. It may actually make life easier.

Margaret Ewing is vice chairman at Deloitte and former CFO of BAA