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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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