A New Report on the Theme of Personal Accountability Contains a Worrying Conclusion

It’s not just me who keeps returning to the theme of personal accountability for senior managers. A very recent survey and report by Thomson Reuters on personal liability of senior individuals and compliance officers contains some fascinating insights. Two findings in particular caught my eye.

An International Phenomenon

I have been saying for some time that it would be wrong to look at the UK Senior Managers Regime in isolation. The US for example is showing every sign of treading the same path. It seems the respondents to the survey agree with me:

64% of respondents to the survey expect that regulatory regimes introducing personal accountability will be replicated around the world.

In fact this is not simply a matter of opinion. It is happening now. Other countries referred to in the report which are already pursuing similar campaigns include Australia, Canada and Hong Kong.

The current chairman of the Australian Securities and investments Commission plans to incorporate “culture”

In Australia for example, the current chairman of the Australian Securities and  investments Commission (who is mentioned in some circles as a possible replacement for Martin Wheatley as Head of the FCA)   plans to incorporate “culture” into its role as conduct regulator with obvious implications for senior manager accountability.

Perhaps even more tellingly, the Thomson Reuters report quotes remarks made by Christine Lagarde, managing director, International Monetary Fund, during a conversation with Janet Yellen, chair of the Board of Governors of the Federal Reserve System in May 2015 when she said:

Ultimately, we need more individual accountability. Good corporate governance is forged by the ethics of its individuals. That involves moving beyond corporate “rules-based” behaviour to “values-based” behaviour. We need a greater focus on promoting individual integrity.

If two of the most important controllers of global purse strings consider this an important enough theme to debate, it is reasonable to assume that its impact will soon extend to other countries too.

All That Work for Nothing?

What is more surprising and disturbing is the finding that:

Only 53% of respondents to the person­al liability survey anticipate new legislation will change behavior for the better.

It’s not clear what lies behind that finding. The survey was conducted among over 2000 risk and compliance practitioners – the very people who have the responsibility for implementing the changes on the ground in large companies. Yet, more than half of them appear to believe that the changes will not be effective. Could it be that they feel this is another case of the regulators shutting the stable doors after the horses have bolted?

Even the most intrusive supervision can only go so far in promoting a culture of ethics

Or maybe it’s because they don’t really believe that the senior managers themselves are really willing to embrace the cultural changes necessary to deliver a model of corporate governance which puts such emphasis on personal accountability.

The report quotes Ravi Menon, the managing director of the Monetary Authority of Singapore saying in January 2015:

Even the most intrusive supervision can only go so far in promoting a culture of ethics. The industry must itself take collective responsibility to promote higher ethical standards. It is better that industry develops codes of good conduct that take into account operational realities that they know best and that holds firms accountable to their peers, than wait for the regulator to set rules that may be impractical or too onerous.

Whilst Mr. Menon’s sentiments might be out of step with those of his international regulatory colleagues at the moment, it could be that they resonate more with the businesses themselves which must implement them. Time will tell who was right.

About Francis Kean

Francis is an Executive Director in Willis Towers Watson's FINEX Global, where he specializes in insurance for Dir…
Categories: Directors & Officers, Executive Risk | Tags: , ,

Leave a Reply

Your email address will not be published. Required fields are marked *