The quality of board level regulatory information often comes up as a discussion topic when I meet CEOs and non-executive directors (NEDs) of financial services (FS) firms. There is clearly a lot of information to distribute and disseminate, and a great deal of emerging regulation to keep abreast of. But, is the way many firms approach regulatory information flow helping inform the board and ultimately driving effective decision making?
Huntswood and Board Intelligence recently completed some insightful research on this subject. Jointly, we spoke to Company Secretaries across FS firms to understand the nature of the information that boards receive – in view of the FCA’s current and planned regulatory changes – and how this impacts the ability of both executives and non-executives to perform their respective roles.
A common area of feedback is that, in respect to regulation and conduct risk, board packs have been getting too long, too dry and not tailored for the audience (the board). Our research found that in some organisations the average board pack can be up to 400 pages. In addition, the proportion of time boards spend discussing regulation and conduct risk varies enormously – it can be as much as 70%. The length of time is dependent upon a variety of issues including the size of the firm, complexity of products and services sold, regulatory changes (for example SMR is yet to impact on all FS companies) and organisational structure; however all firms agree that the increasing volume of updates from the FCA is creating a mountain of content for an already packed board agenda.
There is a risk that this medium of information delivery becomes a tick-box exercise to dealing with regulation and regulatory issues. Is this the best way to deliver regulatory and conduct risk updates to the board, and the non-executives in particular? Surely it is better to try and turn raw information into more bespoke intelligence for the firm and the markets in which they operate and the products they sell? We have seen bespoke workshops, seminars and discussion groups for the board work really well, being much more informative, engaging, interactive and insightful.
Another way to think about the challenge of embedding regulation and conduct risk into board papers is to be radical and break from tradition by having a 'Customer outcomes, trust and reputation' board paper. Now that does drive to the heart of the FCA's agenda and comes at regulation from the right way. This is actually how many firms operate with a focus on being commercially compliant – winning profitably and compliantly, building customer trust and reputation and growing shareholder value.
If board papers could be structured this way how would the board measure success? Base knowledge of regulation and conduct risk of board members is one metric, but effective, compliant decision making is the end game – meeting regulatory requirements while driving commercial benefit, and growing absolute and relative margins and, ultimately, enterprise value. That way, all stakeholders are happy and, importantly, the regulatory tail isn't wagging the commercial dog!
We will shortly publish the full findings of our research with Company Secretaries – register below to receive the report: