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Top-down defence

13 Aug 2012 By John Foley

Standard Chartered needs a governance booster. The UK-based bank is under attack from a New York financial regulator over trades for Iranian clients that could see the bank landed with a huge fine, or worse. A stronger board wouldn’t have prevented the assault, but it might help the bank recover more quickly.

First, StanChart needs the full attention of John Peace, its chairman. He is a boardroom heavyweight who broke up UK conglomerate GUS and created considerable value for its shareholders. But he is spread too thinly. As well as Standard Chartered, Peace chairs the two FTSE-100 companies that came out of GUS: credit scorer Experian and fashion brand Burberry. His StanChart predecessor, Mervyn Davies, had no other major chairmanships. Dealing with regulators in more than 70 countries is no easy task. Considering the other obligations on the chairman of a global bank, Peace may need to spend more time on the job.

Second, StanChart needs more financial oomph on its board. Peace isn’t as experienced in banking as, say, Barclays’ new chairman David Walker, or Lloyds TSB chair Win Bischoff. Among its non-executive directors, besides former Cazenove vice-chairman John Paynter and ex-Barclays finance director Oliver Stocken, the bank lacks banking and regulatory experience. Senior independent director Rudy Markham has also been in his current role for 11 years, too long to be considered truly independent.

Longer term, StanChart’s board has too many executives. It has seven where HSBC, for instance, has four. Having recently added two more, it would be hard for StanChart to yank the newcomers off the board right away, but it can counterbalance them with a beefier line-up of non-execs.

A stronger board would give investors confidence as the bank enters delicate negotiations with the New York regulator. StanChart claims its suspect trades were just $14 million, so if it pays a nine-figure settlement investors may feel disgruntled. Yet if StanChart pushes back too hard it could lose its New York licence, which could destroy considerable value for shareholders.

Given the need for continuity at the top of StanChart, Peace should step aside at either Experian, or Burberry, or both. StanChart also needs at least two non-exec heavyweights, including a senior independent director with banking or regulatory experience. Shareholders should have been asking for change even before the latest crisis hit. StanChart would now be remiss to do otherwise.


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