Sir David sharpens his bank reforms

Author: By Margareta Pagano, Business Editor

In a series of high-level meetings last week, Sir David met with the top executives at Schroders, M&G, Standard Life and L&G, to go through some of the proposals in his report, which was commissioned by the Government after the financial crash.

Sir David is understood to have met with Schroders’ chief executive, Michael Dobson as well as L&G’s investment heads, Peter Chambers and Mark Burgess, to hear their comments on his review into how to improve the accountability and stewardship of banks’ boards. He will also be setting out plans to give non-executive directors more clout to stand up to boards as well as improving their quality.

Many of the report’s proposals are harder than those in the first draft, published in July. One source said: “Sir David has sharpened up his views considerably during the consultation with big shareholders and others. Stewardship is the centrepiece: finding ways of giving directors the gumption to stand up to chief executives and to improve the ownership of shareholders, and the relationship between fund managers and pension funds.”

Colin Melvin, the head of Hermes, one of the UK’s biggest funds with £45bn under management, said: “One of the most important lessons of the crash was the unaccountability of shareholders towards the companies in which they invested. Ownership is key to the success of reforms to make investors more accountable. We are optimistic that Sir David will recommend proposals to make it easier for the ultimate asset-owner, the pension fund, to have a clearer relationship with the fund manager managing its money. Some sort of contract is needed so that there is full disclosure.”

This would allow the end owners, such as pension funds, to behave in a more collaborative way with other owners to help protect the long-term interests of companies.

Strengthening the role of risk management committees on boards, so that members are more independent, is another of Sir David’s reforms. He is expected to introduce proposals which will give sharper teeth to the crucial risk committees, which are responsible for setting pay and bonus incentives for top staff along with the bank’s risk profile.

Sir David has been keen to ban guaranteed and multi-year bonuses, recommending a system of deferred payments and claw-backs. However, many of Sir David’s proposals have been overtaken by Government’s plans to curb bonuses as outlined in the Financial Services Bill, announced in the Queen’s Speech, which gives the Financial Services Authority the power to scrutinise the banks’ pay contracts.

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