implementing the Walker reforms

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We place particular emphasis on the central role of the governing body, or board of directors, of a firm in ensuring that risk is properly managed within a financial services firm. We fully agree with his view that boards must take appropriate steps to ensure that, in addition to the necessary review of the quality and effectiveness of internal controls in their firm, the overall risk appetite of the firm is clearly articulated and its future strategy appropriately aligned with that risk appetite.

FSA CP 10 / 03

The logic in the Walker report represents a huge step forward: to thinking about the role of financial sector in the real economy as a system.

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INTEGRATING GRACE

The report by Sir David Walker on risk and governance in financial institutions in the UK did not meet with universal approval; it was not perfect. Sir David had a difficult problem to address: how did the financial system fail so badly when people within firms were warning it might and no-one acted. This was the context of the review.

While all the attention at the time was focused on the proposals for delaying performance pay over time, that was the least clear or sensible aspect of his report; it simply missed the point. Even worse, the logic espoused by Walker has been picked up and applied at EU level. The result will be easily avoided and clumsy; far more effective and elegant solutions are available.

On more substantive matters, the Walker report makes a number of well-judged proposals on reform to the market for institutional shareholding, all of which deserve rigorous implementation.

His recommendations on creating risk committees were clear, clear-sighted and ‘on the money’. All financial institutions should follow his approach, as should many non-financial corporates.

The clearest aspect of the Walker report – the difference between executives and NEDs – has been glossed over. The FRC has ignored it and the FSA likewise.

His attention to risk has gained more of an audience and deservedly has made its way in to FSA proposals. The FSA requirements in its consultation paper have picked up Walkers proposals cleanly.

Understanding what to do and what not to do with the Walker proposals is problematic. Addressing them, as the FSA has done, as piecemeal initiatives is unhelpful (although essentially unavoidable for the FSA at the time). We help firms to make sense of the governance ‘soup’ of which Walker is part. Addressing governance coherently in the firm is the start of a solution to the problems of the financial crisis; knee-jerk reactions are not. We can help you to tell the difference.

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THE WALKER REVIEW