The board of directors of Bank of Valletta will be meeting this month in circumstances that are, at best, confusing and, at worse, hardly a shining example of good governance, let alone good business.
George Portanier, who has served virtually continuously on the board since 1992, was last month reappointed as director without having to stand for election as there were only as many candidates as there were vacancies. However, he was there only because he refused to accept the negative outcome of an assessment of his suitability by his peers, which he fought (and won) in court.
How the board will deal with this situation has still be seen.
What happened was the result of various pieces of legislation, guidelines and policies: the Companies Act, the Banking Act, the EU’s Capital Requirements Directive, the European Banking Authority’s guidelines, the Malta Financial Services Authority’s banking regulations and the European Central Bank and Joint Supervisory Team.
The fundamental principle guiding the directors’ assessment was beyond reproach: only suitable candidates should sit on a board and when the company involved is a systemically-important bank, then the need to be ‘suitable’ is even bigger. That was never the problem: the issue was how it was decided.
Why is the manner in which such a decision is taken so important? Take purely hypothetical situations. Imagine if you have candidates who fear they might not be elected by shareholders. It would become much easier to guarantee their own place if they could eliminate other candidates. And how much easier to browbeat through ambiguous decisions if the composition of the board has been in some way manipulated. No wonder the court found that the self-assessment route used by BOV was fraught and posed a clear conflict of interest.
The EBA guidelines are themselves open-ended on how to assess suitability, leaving many decisions up to member states, which does not help. Many banks overseas have set up an independent nominations committee but BOV – with no policy on how to go about this – did not opt for this logical solution. The chairman has promised to put a policy in place but that hardly begins to resolve the uneasy situation the ‘new’ board now faces.
And why did the government not include the directive’s article on a nominations committee in the Banking Act?
The court judgment made it clear that the self-assessment would have a negative impact on any subsequent decision by the MFSA and the Joint Supervisory Team. Thankfully, the Joint Supervisory Team will ignore the self-assessment but other question marks remain.
Bank chairman John Cassar White said all directors, himself included, would need clearance by the Joint Supervisory Team. But what about the law, which says that the suitability test does not apply to directors appointed to represent the interests of the government of Malta?
What if the Joint Supervisory Team finds that Mr Portanier (or any director, for that matter) was not suitable? What happens to decisions taken during this month’s meeting?
And what if the whole election has to be held again?
The bank has found itself in an unprecedented situation even if there can be no doubt that it wanted to do all it can to ensure transparency and accountability. Unfortunately, the solution proposed has proven to be unworkable because on the board that has emerged from the last annual general meeting is one member who, through an assessment by the same board, has been declared “unfit for re-election”.
The anomaly, for want of a better word, needs to be corrected urgently.