The Clearing House Association (the “Clearing House”), a banking association and payments company owned by the world’s largest banks, issued, through a subsidiary, an exposure draft (the “Exposure Draft”) setting out a series of corporate governance principles (the “Principles”) for enhancing banking organization corporate governance and thereby promoting a safe banking system. The Clearing House noted that the Principles outlined in the Exposure Draft go beyond what is usually required by law and regulation. The Clearing House stated that, among the proposed guidelines that go beyond legal and regulatory requirements in most jurisdictions are suggestions that:
(1) independent directors constitute a substantial majority (not just a majority) of a holding company’s Board;
(2) “core” Board oversight duties and responsibilities be identified (including a focus at Board meetings, to the extent applicable, on risk management, capital planning, resolution plans and liquidity risk);
(3) a holding company’s audit committee have at least one member who is a “financial expert;”
(4) if the CEO and the Board Chairperson is the same individual, a lead independent director be appointed; and
(5) the Board should seek to meet at least once a year with the banking organization’s principal regulator or regulators.
The Clearing House, which seeks comments on the Exposure Draft, pointed out that not all of the Principles will be appropriate for a particular banking organization and that, therefore, the Principles should be viewed as guiding principles rather than as “best practices.” The Clearing House also stated that the Principles “will be updated periodically to reflect changes in the relevant rules, regulations, supervisory guidance and other source material, as well as changes in industry or market practice and in the collective experience of [the banks that own the Clearing House].”
The Exposure Draft sets forth 16 Principles plus commentary on each Principle. Topics covered include, among others:
(a) basic responsibilities of the Board and management;
(b) independence of Board members;
(c) size of the Board;
(d) Board oversight;
(e) Board committees, including audit committees, nominating/corporate governance committees, compensation committees and risk management committees;
(f) engaging advisors;
(g) chairperson of the Board;
(h) Board meetings, agendas for Board meetings and executive sessions;
(i) minutes of Board meetings;
(j) Board compensation;
(k) meetings with regulators; and
(l) director elections and shareholder rights.
The Financial Services Alert will monitor changes to the Exposure Draft and other significant developments regarding the corporate governance of banking organizations.