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Board Profile, Structure and Practice in Large European Banks A comparative corporate governance study Table of contents A. Foreword...................................................................................................................................................................... 1 B. C. Introduction and synthesis .......................................................................................................................................... 2 Executive summary...................................................................................................................................................... 5 a. b. c. d. e. f. g. h. The profile of the board...................................................................................................................................... 6 The responsibilities and structure of the board................................................................................................... 7 The quality of information fiows to the board...................................................................................................... 8 Board support..................................................................................................................................................... 8 Directors' workload............................................................................................................................................. 8 Board oversight of audit and internai control...................................................................................................... 9 Board oversight of risk management.................................................................................................................. 9 Executive compensation................................................................................................................................... 10 Non-executive compensation...........................................................................................................................10 D. Main report................................................................................................................................................................. 11 1. The profile of the board.............................................................................................................................................. 12 1.1. Board models: a high level typology..................................................................................................................... 12 1.2. Board size............................................................................................................................................................ 14 1.3. Board composition and independence................................................................................................................. 15 1.4. Board competence............................................................................................................................................... 17 1.4.1. Directors' age, tenure and external commitments..................................................................................17 1.4.2. Board diversity....................................................................................................................................... 21 1.4.3. Board evaluation.................................................................................................................................... 23 1.5. Succession planning............................................................................................................................................ 24 1.5.1. Succession planning for non-executive board members....................................................................... 24 1.5.2. Succession planning for senior managers............................................................................................. 24 2. The responsibilities and structure of the board........................................................................................................... 26 2.1. The board's agenda............................................................................................................................................. 26 2.2. Delegation of authorities to the executive management....................................................................................... 27 2.3. Board structure and committees.......................................................................................................................... 28 3. The quality of information fiows to the board.............................................................................................................. 33 3.1. Board reports....................................................................................................................................................... 33 3.2. Board meeting schedules..................................................................................................................................... 33 3.3. Board presentations............................................................................................................................................. 34 3.4. "Off-site" strategy seminars.................................................................................................................................. 35 3.5. Induction programmes for new directors.............................................................................................................. 36 3.6. Board member site visits...................................................................................................................................... 36 3.7. Board support....................................................................................................................................................... 37 4. Directors' workload..................................................................................................................................................... 38 4.1. Audit committee members' workload................................................................................................................... 38 4.2. Remuneration committee members' workload..................................................................................................... 39 4.3. Nomination committee members' workload..........................................................................................................39 5. Board oversight of audit and internai control..............................................................................................................40 5.1. Audit committee size and composition................................................................................................................. 40 5.2. Oversight of internai audit and internai control.....................................................................................................41 5.3. Oversight of externat auditors.............................................................................................................................. 42 6. Board oversight of risk management......................................................................................................................... 44 6.1. The setting of risk appetite................................................................................................................................... 44 6.2. The understanding of risk management by board members................................................................................ 45 6.3. Time spent on risk management by the board..................................................................................................... 45 6.4. The establishment of board-level risk committees............................................................................................... 47 7. Board and senior management compensation...........................................................................................................48 7.1. The balance of fixed to variable compensation for executive directors................................................................ 48 7.2. The structure of short-term variable compensation for executive directors..........................................................49 7.3. The structure of long-term variable compensation............................................................................................... 50 7.4. Non-executive director fees................................................................................................................................. 52 7.5. Director share ownership requirements............................................................................................................... 55 Appendix A: Background information on the 25 peer banks................................................................................................. 58 Appendix B: Country of incorporation and listings................................................................................................................. 67