A new breed of boardroom director will crack down on risk and bloated pay deals under recommendations designed to prevent another banking meltdown.
Sir David Walker's interim review of bank governance, released yesterday, said remuneration committees should be able to examine company-wide pay, and called for new risk committees with power to block takeovers if necessary.
He also wants non-executive directors — appointed from outside the firm and often from other industries — to be better-informed, spend more time on the business and be able to stand up to over-mighty chief executives.
Sir David's report makes a damning critique of cosy bank boardrooms who failed to challenge risky business models in the run up to the crisis.
“Many boards inadequately understood the type and scale of risks they were running and failed to hold the executive to high standards of sustainable performance.
“Bonus schemes contributed to excessive risk-taking by rewarding short-term performance. And shareholders failed to exercise proper stewardship,” he said.
His comments will be taken as a thinly-veiled criticism of Royal Bank of Scotland, now 70% owned by the taxpayer.
The bank run by Sir Fred Goodwin fatally weakened its finances with the takeover of ABN Amro at the top of the market in 2007.
Sir David said shaking up the boardroom culture would be a “small price to pay” in return for better leadership.
He said his recommendations on pay were “as tough or tougher than anything to be found elsewhere in the world”.
Sir David is calling for more power for pay committees to oversee salaries across the company, including the pay of the highly-paid “rainmakers” who do not sit on the main board but regularly earn more than directors.