Active engaged governance or just going through the motions?

Should banking regulators seek to supervise culture in the same rigorous way they assess liquidity or balance sheet risks. Not everyone is persuaded. After all, culture isn’t quite as concrete and doesn’t lend itself to the world of spreadsheets and models.

But it’s harder to complain about a supervisory review of governance which can operate as a proxy for culture. Of course, governance reviews are nothing new, and have been in the supervisory toolkit for some time.

But the question is whether they really get to the heart of the matter. Do they give the right insights into whether the institution’s operating culture supports effective identification and management of risks?

Governance often looks good on paper, and a desktop review may give a different story to what’s happening on the ground.

It has been suggested that supervisors may, for example, attend governance meetings as a silent attendee to evaluate the culture of dissent – do people really speak up, challenge “groupthink” and are those views given due consideration?

But the attendance of a regulator may skew the discussion – and some “enhancement” may have been carried out in advance.

Even so, a regulator can put themselves in the shoes of an attendee who has just been invited onto the committee. What would first impressions reveal?

Here are ten ways to assess whether a governance meeting supports an active risk culture and proper engagement.

Why am I here?

Is the committee a decision-making or escalation forum as part of a documented process e.g. client onboarding? Or did someone create a committee as a talking shop? Can the purpose of the meeting be easily explained? If not, the purpose should be honed until it can be articulated in no more than three sentences.

Who are all these people?

Does the number of these attending for information purposes far outweigh the number of decision-makers?  Remove anyone who doesn’t have a formal role. Guest presenters can be invited only for their topic. Anyone else can read the minutes if they need to. Watch out that the committee isn’t simply an exercise in diffusing accountability by inviting the masses.

The materials were circulated late last night.

If the committee meets regularly, this is unacceptable. If decision-makers don’t have time to consider the materials and ask for any further supporting information, then the quality of discussion will be poor, and the time wasted.

Let’s turn the pages on the materials.

No let’s not. This is another waste of the time for engaged discussion about risks, and leads to death by powerpoint. If the committee is important, the attendees will read the materials before the meeting and the materials can be taken as read.

The decision is on page 147.

Even if the materials are circulated in advance, they need to be succinct and precise, with a meaningful summary at the outset. The decision to be taken needs to be clearly set out. The chairman should have reviewed the materials and sent back any decks not up to standard.

Everything on the agenda is critical.

I doubt it. Is the agenda set by priority? Assuming the meeting is time-limited, critical topics need to go first. There’s no place for a warm-up act – especially if the first agenda item is really designed to allow participants time to skim read late-delivered materials.

We have only 5 minutes per agenda item

Whilst it’s important to manage time, it’s not right to restrict time for what might be a critical risk discussion. Allow an appropriate buffer. Use the Any Other Business slot if you need to.

Let’s not waste time on what-ifs

But considering what can go wrong (and the worst-case scenarios) is an effective way to assess risk. Draw on the experience around the table – look at it from the point of view of the Board or the regulators or the media.  How will the decision be construed in the future?

Didn’t we agree this yesterday?

Some committee owners or project managers like to make sure everything is pre-sounded and agreed before the meeting, so the actual committee runs smoothly and any disagreement not on show. But this devalues the purpose of the committee to discuss properly and take decisions. It also takes a lot more time than is necessary. It’s clearly better to have challenge and dissent shown transparently.

Who is chairing this meeting?

The chair runs the meeting as the senior representative with accountability. If they delegate to a subordinate to run the meeting, they aren’t fulfilling their responsibility. They should bring all of their seniority to bear in ensuring the meeting meets its purpose.

Why is no-one talking?

It’s all about the speak-up culture, the culture of dissent. If you don’t have engaged attendees who understand that their role is to think, probe and challenge, rather than simply manage their email while agenda items come and go, the chair needs to drive change. The chair should consider speaking 1-1 to the attendees, confirm expectations, and recognise dissenting views when they are expressed. Watch out if a senior attendee belittles those more junior who do raise questions.

So if a regulator does find weak governance, what should it do? Raise it to the executive with responsibility for governance, and see whether that leads to an engaged conversation. Is governance taken seriously? And is it recognised that the way these type of meetings are handled has a real impact on how employees feel their risk and control obligations?  Tone at the top isn’t just for townhalls – but also includes tone at the meetings!

JULIAN GOODING

Independent Consultant, General Counsel | Regulatory Compliance | Corporate Governance | Conduct and culture

About Julian GOoding

Julian is an experienced regulatory lawyer and compliance professional working in the financial services industry.

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