PETER SNOWDON<br /><strong>PARTNER, NORTON ROSE LLP</strong><br /><br />WE can expect the Walker Review, due tomorrow, to highlight shortcomings in banks&rsquo; corporate governance that allowed excessive risk-taking to go unchecked, leading to the financial crisis.<br /><br />The report is likely to recommend strengthening banks&rdquo; risk assessment arrangements and possibly suggest separate risk committees, reflecting the sector&rsquo;s perceived failure to analyse risk properly.<br /><br />We can also expect recommendations to make institutional investors take more responsibility for companies they invest in and to strengthen non-executive directors to challenge powerful chief executives.<br /><br />These themes are well worn and it is right that they should be addressed. Yet we need to be realistic about the roles of the main players and how much change governance reform can bring about.<br /><br />Institutional shareholders have faced fierce criticism, including from the FSA, for not questioning banks&rsquo; business models and behaviour. But investors are not regulators. Their job is to maximise return on investment, and there is an inescapable relationship between return and risk.<br /><br />Investors have a role to play but imposing a heavy corporate governance role can only play a limited role in preventing future financial crises because of he commercial reality of their role.<br /><br />Similarly, we should not expect non-executive directors to become risk assessors for the financial system. The information they have is too limited. The regulator and the credit rating agencies should still look at the broader picture when assessing a financial institution.<br /><br />The final responsibility for monitoring banks lies with the regulators, and there is a lot they can do to help. The Approved Persons Code could be amended to give new examples of behaviour unacceptable for those with significant influence over a bank. They could also give more support to non-executives by giving more information, having greater contact, possibly through setting up a separate support functions for them. Some banks would argue that non-executives already receive adequate support from the executive but there is an argument for enabling non-executives to seek their own legal advice and commission their own research.<br /><br />Sir David is likely to recommend that boards should have enough seasoned bankers. A lot of experience goes to waste because a banker with 35 years of experience at one lender is unlikely to become a non-executive at another but he or she is not considered independent enough to become a non-executive at his own company. Regulators and the legislators should consider relaxing the independence requirements in certain cases.<br /><br />But governance reform can only play a limited role in averting future crises. The FSA has admitted its failings and ultimately a vigilant, active regulator is the most important safeguard.