Lessons from the banking crisis

With turmoil now representing business as usual, Professor Andrew Corbett-Nolan asks: what governance lessons are there for today from the 2008 global banking crisis?

We are cursed to live in interesting times. The fortunes of our great institutions are now routinely impacted by major global events and rapid, hard-to-predict technological changes. In this climate it is good governance that should be a means by which new opportunities can be seized while simultaneously anticipating and managing consequent risks.

Can we draw any lessons from the 2008 global banking crisis – the moment in history when the governance of our banks failed to prevent a crisis that UK taxpayers have only just finished paying for? We believe so.

GGI was founded in 2009 – the same year as the publication of Sir David Walker’s review into the banking crisis. It is an insightful report. We have perpetually referenced the learning from this analysis in our work with more than 1,200 public purpose organisations. Why? Because we have in it incredibly valuable first-hand testimony about what went wrong with banks’ corporate governance and a credible source of learning from no less an individual as the former chairman of Barclays Bank, by 2008 retired but a front row audience member to the global banking catastrophe.

While the primary focus of Walker’s analysis was on the banking sector in 2008, the review’s findings offer valuable, practical and above all actionable lessons for the boards of today’s public-purpose organisations.

Though distinct from banks, public-purpose organisations share the need for robust governance to manage risk, ensure accountability, and deliver on their missions effectively. The Walker Review’s emphasis on board composition, risk governance and non-executive oversight provides actionable insights for public purpose boards striving to enhance their governance frameworks in an uncertain and volatile world.

The context of the Walker Review

The banking crisis was the first major global economic shock since the oil price crisis of 1973. It felt as though the banks had been playing Monopoly with real money, and we all landed on 'Go to Jail'—except them. It was obvious to see that there had been problems in strategy, leadership, risk management, regulation and governance. Prime Minister Gordon Brown commissioned the respected Sir David Walker to:

1. examine corporate governance practices in UK banks and other financial institutions, particularly focusing on the effectiveness of risk management at the board level
2. review board practices related to the structure, composition, and performance of boards, including the skills, experience, and independence of board members
3. assess the role of institutional shareholders in engaging with banks to ensure effective governance and oversight
4. evaluate remuneration policies to determine whether they encouraged excessive risk-taking and how they aligned with long-term value creation
5. consider the balance of risk management and the role of board committees, such as risk and audit committees, in overseeing financial institutions
6. make recommendations to improve corporate governance practices to strengthen the stability and resilience of the financial sector, ensuring better alignment with the interests of shareholders and the wider economy.

Clearly, the financial crisis had exposed significant governance failures in the boards of financial institutions (BOFIs), contributing to excessive risk-taking and systemic instability. Walker review identified weaknesses in board practices, risk management, and shareholder engagement and proposed 39 recommendations to strengthen governance. His review is thorough and thoughtful.

The review’s relevance now is that while today’s public-purpose organisations operate in less leveraged environments, their governance challenges—balancing stakeholder interests, managing complex risks, and ensuring long-term sustainability—closely mirror those of banks in 2008.

GGi has previously referenced the Walker Report to highlight its relevance to non-financial sectors, particularly in areas such as audit committee effectiveness, forward-looking risk management and non-executive scrutiny.

Key governance lessons for today’s public-purpose boards

Essentially, Sir David Walker’s recommendations boil down to ‘brilliant basics’ for corporate governance and boards that have insight and foresight. It’s as simple as that.

1. Board composition and capability

Walker emphasised the importance of board composition, particularly the skills, experience, and time commitment of non-executive directors (NEDs). He recommended regular thematic business awareness sessions (board development) and personalised induction, training, and development for NEDs to ensure they understand the organisation’s operations and risks.

For today’s public-purpose boards, this underscores the need to recruit NEDs with diverse expertise and life experience relevant to the organisation’s mission—whether clinical knowledge or digital insight for NHS trusts, educational or financial fluency for universities, or community engagement and economic regeneration for housing associations.

Specifically, a 2023 GGi report recommends that boards will always need NEDs with relevant market experience, the ability to muster an audit committee and experience of making senior appointments and, on top of this, skills and experience relevant to the organisation’s context and strategy.

Good boards, though, don’t just happen, they are deliberately built. Today more public boards embrace the concept of board development as essential than in 2008 but often these programmes are poorly connected workshop sessions rather than outcome-orientated cohesive programmes, and even more frequently no formal evaluation of impact helps to keep these programmes relevant and useful. Ongoing board development is not a ‘nice to have’, it’s essential.

Boards must also ensure NEDs have sufficient time to engage deeply with strategic and risk-related issues (Walker’s recommendation 3 suggests 30–36 days annually for major bank boards – NHS NEDs on 2.5 days a month come in to this recommended range). Public-purpose organisations should adopt similar expectations, ensuring NEDs are not overstretched by multiple commitments which could dilute their effectiveness.

In Australia, the best evidence on this issue comes from a 2019 study by Monem and Ng, who analysed ASX-listed companies and found that NEDs with multiple directorships were associated with lower firm performance in complex industries (e.g., mining, finance) due to divided attention. Additionally, an Australian Institute of Company Directors (AICD) report in 2021 noted that 60% of directors surveyed believed that holding more than three board positions could compromise their ability to prepare for meetings, engage in strategic oversight, and respond to crises. It is perhaps no coincidence that Australia fared better than other countries throughout the 2008 banking crisis.

Finally, Walker also urges regulators to scrutinise the balance of board skills in relation to risk strategy. Public-purpose boards can apply this by regularly assessing whether their collective expertise aligns with emerging challenges, such as digital transformation or regulatory changes and spending board development time aligning their risk appetite approach.

2. Forward-looking risk governance

One of the Walker Review’s most significant contributions is its focus on forward-looking risk governance, particularly through the establishment of dedicated board risk committees (Walker’s recommendation 23).

Unlike audit committees, which focus on historical financial performance, risk committees are tasked with overseeing current and future risk exposures, including macroeconomic and sector-specific risks. For public-purpose organisations, this approach is critical. NHS trusts, for example, face risks related to rising demand, cost transference where there is poor local primary care, general funding pressures, and workforce shortages, while universities grapple with financial sustainability and student welfare.

A forward-looking board can anticipate these challenges, using tools like stress-testing and risk appetite to assess vulnerabilities (Recommendation 27). Specifically, GGI does not recommend setting up specific board risk committees to carry out this function, rather we suggest this is the job of the whole board – it is the anticipatory mindset rather than Walker’s particular structural recommendation that is important.

GGi favours the ‘Three Horizons’ approach to make this real and is currently conducting a major programme of work on this. Prospective risk evaluation is so important it should be a whole-board activity and time found to do this at some depth within the board development programme.

Walker also advocates for an independent chief risk officer (CRO) with enterprise-wide authority (Recommendation 24). While all public purpose organisations may not require a CRO, they can adopt a similar principle by ensuring risk management functions are independent and report directly to the board or a risk committee. This avoids risk oversight being subsumed under compliance functions, a common pitfall in BOFIs during the crisis.

Public-purpose boards should integrate prospective risk assessments into their strategic planning, ensuring risks are not only mitigated but also aligned with organisational objectives. Senior leadership and oversight of risk management is, we feel, crucial to good governance and we are happiest when risk is not delegated as a second-tier and mechanistic managerial function.

3. Non-executive scrutiny and challenge

Walker places significant emphasis on the role of NEDs in providing robust scrutiny and challenge to executive proposals (Recommendation 6). This is particularly relevant for public-purpose boards, where executives may dominate decision-making due to their technical expertise.

Another governance evil is the failure to separate managerial oversight of process and NED challenge as to process integrity, and GGi has been at pains to ensure organisations separate the two. The Walker report highlights the need for an environment where NEDs are encouraged to question strategies and ensure decisions are based on comprehensive, accurate information. For organisations such as housing associations or third-sector entities, where stakeholder trust is paramount, NEDs must act as a counterbalance to executive optimism, ensuring decisions reflect the interests of service users, funders, and the wider community.

The role of the chair is pivotal in fostering this environment (Recommendation 9). Chairs of public-purpose boards should prioritise leadership that facilitates open debate, allocates sufficient time for strategic discussions, and ensures NEDs have access to external advice when needed (Recommendation 25). The recommendation for annual chair elections (Recommendation 10) is directly applicable, but public-purpose boards could adopt regular evaluations of chair effectiveness led by the senior independent director (SID) to maintain accountability.

4. Audit committee effectiveness

While the Walker Review advocates for separate risk committees, it also underscores the importance of audit committees in overseeing financial integrity and internal controls. Public-purpose organisations rely on audit committees to ensure transparency and accountability, and for sectors like the NHS the scope of the audit committee is much broader than simply finance – the audit committee should be scrutinising the resilience of governance processes overall.

Recommendation 12, which calls for formal board evaluations with external facilitation every two to three years, is highly relevant and most public-purpose organisations are subject to the same formal strictures. Public-purpose boards should adopt rigorous evaluation processes to assess their performance, identify skill gaps, and ensure alignment with organisational goals. All too often these external board evaluations are seen solely through the lens of preparation for the regulator rather than proper board effectiveness. Where this happens, it is an opportunity for improvement wasted.

Transparent reporting on these evaluations, as suggested in Recommendation 13, can enhance stakeholder confidence, a critical factor for organisations accountable to the public.

5. Stakeholder engagement

Although the Walker Review focuses on shareholder engagement (Recommendations 14–22), its principles of stewardship and dialogue are applicable to all public-purpose organisations, which must engage with diverse stakeholders—patients, students, residents, or donors—whose interests are akin to those of shareholders in a commercial context. Recommendation 16, which extends the Financial Reporting Council’s (FRC) remit to promote stewardship principles, suggests that public-purpose boards should formalise engagement strategies.

6. Remuneration and incentives

The Walker Review’s recommendations on remuneration (Recommendations 28–39) address excessive risk-taking driven by short-term incentives. While public-purpose organisations typically have less complex remuneration structures, the principle of aligning incentives with long-term objectives is relevant. For example, performance-based pay for senior executives in NHS trusts or universities should be tied to sustainable outcomes, such as patient care quality or student satisfaction, rather than short-term financial metrics.

Recommendation 33’s emphasis on deferring incentives and incorporating clawback mechanisms can inspire public-purpose boards to design compensation frameworks that prioritise long-term mission delivery over immediate gains. This issue is of growing importance as performance-related rewards strategies are specifically referenced in the new NHS ten-year plan.

Applying Walker’s lessons to public-purpose boards

Public-purpose organisations can integrate these lessons into their governance frameworks by:

• enhancing board capability: recruit NEDs with relevant expertise and ensure they have sufficient time and board development support to engage effectively
• adopting forward-looking risk management: establish forums to support systematic prospective risk assessment, supported by independent risk functions
• strengthening non-executive oversight: foster a culture of challenge led by an effective chair, with access to external advice to bolster scrutiny
• improving audit committee effectiveness: align audit and risk functions to provide comprehensive oversight, supported by regular board evaluations
• prioritising stakeholder engagement: develop formal mechanisms to engage stakeholders, ensuring their perspectives inform strategic decisions
• aligning incentives: design remuneration policies that reward long-term mission success, avoiding short-termism.

Conclusion

The Walker Review of 2009, though focused on BOFIs, offers timeless governance principles for public-purpose organisations. By emphasising board capability, forward-looking risk management and non-executive scrutiny it provides a roadmap for boards to navigate complex challenges while delivering on their public missions.

As GGI has previously noted, these lessons are not confined to the financial sector but resonate across sectors where trust, accountability, and strategic foresight are paramount.

By adopting these principles, public purpose boards will strengthen their governance, enhance stakeholder confidence, and ensure sustainable impact.