Articles

"Bank Governance : Continuing Professional Development for Bank Directors "

 Author: Professor John Mellor, Chair, Foundation for Governance Research and Education

Commentators, academics, bankers and politicians are all of the same mind: the world economic order is undergoing a fundamental reshaping driven by geopolitical tensions and the pace of technological change. Uncertainty about outcomes is common place in thinking about the future. Banks on the other hand are currently reporting increased profitability and the price of their shares has risen in response. But an uncertain environment must lead to caution in predicting future profitability. This caution can only be exacerbated by any prospect of tougher times ahead. There are already signs of overheating in credit markets, e.g. in private credit.

This uncertainty will raise governance questions which will challenge the boards of banks with non-executives in a pivotal role. Non-executive director effectiveness in the boardroom will rest not only on their existing capability but on their capacity to extend their governance knowledge and insights to meet the exacting standards of professionalism required, and be prepared to deal with the unexpected. In these circumstances continuing professional development becomes an imperative for non-executive (and executive) directors. Professional development for directors has been included in various governance guides, e.g. the Higgs Review of Non-Executive Directors and the UK Governance Code, but it is questionable whether it has been accorded sufficient emphasis.

There is a need for all bank directors to maintain a keen awareness of what good governance involves, how regulators expect them to behave, and how boards should conduct themselves in a crisis. By combining governance expertise, legal input and director experience with in-depth discussion of a case study and engagement between a limited number of participants with a variety of experiences, FGRE has established a format which addresses this need. Firmly based on practice, the FGRE forums encourage a forward-looking mindset to confront the challenges to bank governance occasioned by the pace of change in the industry.                                          

August 2025

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"Bank NEDs will confront multiple challenges in a post-pandemic world" 

Author : Professor John Mellor (Chair, FGRE)

Currently banks, having to deal with the uncertainty arising from the pandemic and its consequences for the economy, are needing to focus on their sustainability and resilience. Unlike the threat to a bank’s viability occasioned by the 2008 financial crash, banks are suffering a severe squeeze on profitability from low interest rates and hits to capital from mounting loan defaults, all adding to the pressure on returns to cover the cost of capital. In this light banks are reviewing their strategies and business models, but it is also clear that the unfolding of a post-pandemic world will ask new questions of bank governance which will present issues and challenges to NEDs, including chairs.

For the present, two critical questions for bank boards collectively and NEDs individually arising in the pandemic aftermath are a bank’s societal impact and its reputation. The current and post-pandemic world is likely to test a bank’s purpose and responsibility to society. This will increase the focus on the ‘S’, the social in the ESG (environment, social, governance) investment evaluation agenda. A banks’ reputation which underpins its licence to operate could come under severe and damaging pressure if it is deemed to mishandle defaults on repayment of pandemic related debts.

Other crucial questions also arise for board diversity (in terms of gender, ethnicity and background), conduct (in terms of values, integrity and ethics), and remuneration policy, now even the more sensitive in the light of revelations of low pay rates for key workers essential in the fight against the pandemic. And yet another key question for NEDs is the implication of an increased role for the State, which has inevitably followed its ongoing and necessary support for the economy. This question will need to be considered within a macro and geopolitical context including Brexit.

 From a practical perspective a number of challenges confronting NEDs are beginning to emerge. The economic pressures on the industry alluded to at the beginning of this blog will make even heavier demands on executive management. NEDs may have to revisit the balancing of their support and challenge, and systems of communication, so as to allow management the time and space to function effectively. The perception of risk will also likewise need to undergo some transformation to take account of further pandemics. Inherent to all this will be a need to think ‘outside the box’ and expect the unexpected. To some degree at least remote working is likely to become a permanent feature raising issues of control. And finally, the accelerating pace of transformation in banking will continue to be driven by technology. An example is the transfer of banks’ workloads to the cloud (cloud-based services).

 This blog is intended to be the first in a series to allow further comment on the questions and challenges confronting NEDs on bank boards.

October 2021

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