ICGN: letter re ECB's Draft guide on governance and risk culture

18 December 2024

ICGN agrees with the ECB that “governance and risk culture are essential features of anywell-functioning organisation”. We support the emphasis in the draft ECB Guide on effectiveboard oversight.

Investors rely on strong and independent boards of directors. They expect
boards to provide strategic guidance, risk oversight, and effective monitoring of management’s
plans and performance in promoting the long-term success of the company. As we laid-out in
our Global Governance Principles, boards should comprise directors with relevant knowledge,
independence, competence, industry experience, time commitment, and diversity of
perspectives to generate effective challenge and objective decision-making. Boards should
instil and demonstrate a culture of high standards of business ethics and integrity, and should
ensure that companies manage risks effectively and have robust internal controls in place. We
believe the ECB has captured all these important elements in its draft Guide.
We note that this guide is not meant to be prescriptive nor to lay down legally binding
requirements, which is helpful considering the diverse governance structures that exist in
Europe. We believe the practical examples included in the draft Guide are particularly
beneficial, helping make the content more relatable to institutions as they work to enhance
their governance practices. Investors will also be able to point out to the best practices
highlighted by the ECB when engaging with banks in their portfolio.
We also support the focus on culture. We welcome the ECB’s emphasis on the board’s role in
shaping a culture of accountability, fostering psychological safety, and supporting robust risk
appetite frameworks. We agree that the “tone from the top” and an environment of open
communication and transparency, where employees are encouraged to report concerns or
issues without fear of retribution, is crucial for effective risk management, and for long-term
value creation. This is something ICGN emphasised in our latest Investor Viewpoint on
workers’ voice in corporate decision-making and in a previous Viewpoint on the board’s role
to oversee culture....

more  at full paper

ICGN

© ICGN - International Corporate Governance Network