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Walker’s first guidance on this point was that all non-executives of major banks and other financial institutions should commit to serve a minimum of 30 to 36 days a year. That got watered down in his final report to a commitment for only “several” NEDs to devote that amount of time; others could serve less.
Walker acknowledged that not all non-executives are retired with time on their hands – a valuable role is played by those who also have a full-time job serving as executives in other companies. If their services are to be retained – and it is generally thought a good thing that they are – a reduced time commitment has to be accepted.
The FSA repeat this formula but stipulate that the NED’s letter of appointment must be explicit on the time commitment which has been agreed. And the ability to meet that obligation will be something the FSA will assess before giving their approval to the appointment.
A pivotal role The FSA’s overriding message on non-executive directors is that their role is pivotal in the active governance of companies. Where the executive team has performed poorly, the FSA will also examine the role of the non-executives if they have not intervened in a “timely and sufficient way”.
Disciplinary action against NEDs may not be contemplated, but the FSA is nonetheless withdrawing guidance in its Handbook which could be read as suggesting they will never hold them responsible for failing to intervene.
Competence and capability, a greater focus on individual NED roles, the need for industry expertise and time commitment – these are questions of interest not only to the regulators, but to all companies and increasingly to their shareholders as well.
The FSA’s consultation ends on 28 April 2010 and they expect new rules to be in place in the third quarter of 2010.
Martin Webster is a partner at Pinsent Masons LLP.
SPRING 2010
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