Independent review of Westpac provides good reminders for all boards

Following the Reserve Bank of New Zealand’s concerns regarding risk management processes, an independent report was commissioned to assess Westpac New Zealand Limited’s risk governance processes. The objective of the review was to assess the effectiveness of risk governance at the bank, with a particular focus on the role played by the board.

The independent report into Westpac New Zealand’s risk governance practices provides some useful reminders for all boards.

The Risk Governance Review report, a Section 95 Review of Westpac New Zealand by consultancy firm Oliver Wyman, has again highlighted the importance of the board leading a strong risk governance and risk culture.

The review’s findings relate both to the board’s capabilities, performance and structure, as well as the broader risk governance structures, which affected the board’s ability to effectively govern risk. 

The reviewers made four recommendations:

1. Equip the board to effectively challenge the Executive management on risk topics
2. Strengthen the operating model of the Board and its committees
3. Improve communications, risk behaviours and mindsets
4. Enhance the risk governance framework.

So what can we learn from the review that we can apply to our own entities?

• Non-executive directors and independent directors on the board need to have sufficient industry-specific expertise to allow for robust challenge to the executive on risk issues.
• Boards need to effectively use, consider and engage with the entity’s risk appetite framework. This includes actively discussing risk appetite at each meeting, articulating tolerance for risk taking, monitoring the organisation’s position against those tolerances and using the set risk appetite to guide strategic decision-making.
• There needs to be an appropriate operating model for the board and committees, including being clear on processes, roles and responsibilities, getting committee composition and cross-membership right and ensuring strategically focused agendas and papers are coming to the meetings. Ensure the agendas are efficient, well-prioritised and there is sufficient time for debate and challenge for the most material issues. Consider carefully who should be in the room.
• The risk reporting needs to be tailored to the audience (ie the board or committee). Avoid overly voluminous papers.
• It’s the board’s role to set the tone from the top and hold management to account on performance in respect of risk issues. When discussing risk with the executive, explicit consideration needs to be given to timelines, available capability and capacity, and priorities of the entity.
• Use a ‘show me, don’t just tell me’ approach with the executive and insist on quality reporting that substantiates the narrative.

Read the full Risk Governance Review report on the RBNZ website.