THE chairman of budget airline Flybe has criticised regulators for being “asleep on the job” during the financial crisis and called for the body to proscribe to more evidence-based regulation.
Laffin, a former Safeway CFO and board member of Northern Rock, made his comments as a panel member of the ‘When governance becomes real‘ plenary, chaired by FRC executive director of strategy, Chris Hodge.
“There’s too much regulation,” said Laffin. “I’m concerned about the unevenness of regulation. We lack evidence-based regulation.
“We almost never see a regulator say ‘I have done an analysis on the situation and in this case, this happened. Now I have a new piece of regulation and if we had that regulation in place at the time, it wouldn’t have happened’. And I challenge any regulator in the future to do that.”
Laffin is adamant that one of the biggest failures of the recent financial crisis, apart from a “failure of imagination about how bad things could be” is a failure of culture at banks and in regulators who were asleep on the job.
“So culture was a big factor, but post-financial crisis, what have the authorities and regulators done to help business people to make sure we’ve got the right culture? They’ve put in regulations so you have to do this and sign off that, but nothing on culture because they just don’t know how to,” he said.
He stressed that a more useful path for the regulators is a return to evidence-based regulation with real examples of what went wrong, with full disclosure of their analysis, what steps they were now putting in, to help stop a recurrence.
“The FRC ought to do a proper analysis of what went wrong on a people level using the standard techniques of culture and team management – all of which are really advanced in other sectors, and start applying that to what went wrong. We need to tackle it on a people, team spirit and a cultural level.”
He went on to say that “rules are the antithesis of good performance”.
“A board is a team and creating rules does not improve team performance. What makes a team play better is encouragement, technique, experience and insight. Not rules,” Laffin said.
“There is a tendency among regulators, and the FRC particularly, to think that boards are naughty children and that you have to spell out some of the basics. I think it is insulting and crazy because generally boards are full of people who are talented and trying to do a good job.”
The broad-ranging session looked at what good corporate governance should look like and explored new ways to take a more proactive approach to managing disasters and maintaining fluid governance processes before its too late.
Carol Shutkever, a partner at City law firm Herbert Smith Freehills, posited that regulation can “sometimes be useful” and cited the FRC’s governance code as driving a degree of change
“There’s pressure on the board to make certain statements” which “does make the board think about these issues”, she said, but added concerns about a growing divide between executives and non-executives.
“Increasingly governance is regarded as a non-exec matter when actually it is the management team in the company that can affect good governance in more ways and more so than the non-exec,” Shutkever said.