Vericool Finance

In John Buchan’s The Thirty Nine Steps, the hero, Richard Hannay, attempts to piece together a mysterious assassination plot that leads him to seek refuge in Scotland. Given recent events there, it might be unwise to head north of the border if you’re a banker. But now Sir David Walker – a stalwart of Morgan Stanley – has proposed his own 39 steps to better bank governance in the hope of averting future disasters on the scale of the collapse of Royal Bank of Scotland.  Has he pulled it off?

Hopes weren’t high.  Walker was dismissed by many as a City old boy who would never turn on his own. But what he has to say is both sensible and useful.  He proposes beefing up boards to counter over-powerful executives by putting non-executives in charge of new shareholders with pressure from regulators id they fail to exercise proper stewardship.

Pragmatic, certainly, but the most striking thing about this report is that so banal a set of recommendations were necessary.  It’s all great in principle, but there are big cultural barriers to practical application.  The risk function in most banks is so low status, for example, that it is hard to imagine even the best practitioners stomping around in hobnail boots when the chief executive comes up with a whizzy M&A transaction.  You can hear the next lot in front of the Treasury Select Committee already.  “Well, our head of risk said, go right ahead…”

Given the British public’s one-point agenda to punish the banksters, it’s not surprising that Walker’s most controversial proposals centre on bonuses. Some senior bankers claim the move to defer half the pot for three, or even five years, could prove as damaging to London’s competitiveness as the Sarbanes-Oxley reforms were to Wall Street.

And Walker was surely playing to the public gallery by calling for compulsory disclosure of the biggest packages which has nothing to do with  improving corporate governance or preventing future crisis.  In fact, given the failure of past voluntary governance initiates, there’s every reason to be cynical that the new reforms will make a lasting difference. The history of remuneration reform is littered with the corpses of do-gooders… steamrollered by market forces or bypassed by cunning advisors.

At least Sir David tried.  But the real onus is on governments to push for higher standards internationally – and then enforce them at home.