"No FCA board member has uttered even the feeblest cheep of protest, let alone done the honourable thing and resigned.
Yet if directors were happy with Wheatley, they should resign in protest at this external interference; if they were unhappy with Wheatley, they should have done something themselves to improve his performance or secure a replacement.
Either way, the board appears dysfunctional."
That is certainly an explanation of the conduct he observed but there is a deeper issue.
The FCA's corporate governance framework confirms that:
"The FCA is governed by a Board with members comprising: a Chair and a Chief Executive appointed by HM Treasury (Treasury); the Bank of England Deputy Governor for prudential regulation; two non-executive members who are appointed jointly by the Secretary of State for Business, Innovation and Skills and the Treasury, and at least one other member appointed by the Treasury. The majority of the Board members are Non-Executive Directors (NEDs)." (1.5)In other words if a board member takes a line that offends the Treasury, they risk not being re-appointed.
In my experience this is sometimes a real fear of NEDs who enjoy the status or the money that flows from their appointment; and there is an additional aversion to risking 'failure' to be reappointed if the non-reappointment may be given publicity, as in the case of Mr Wheatley.
This government-imposed structure is inherently likely to make a board dysfunctional.
First, minsters like appointees who will be compliant and not rock boats. For a minister, an appointee who enjoys the status or wants the money, and preferably also lacks the character to take a public stand against the minister, is an ideal appointee. From the perspective of the board and its organisation, such an appointee is a disaster waiting to happen.
Second, board composition matters. An effective board needs an NED team with not only intelligence but also the knowledge, skills and experience to understand every aspect of the organisation's business. Unless the board has the spine to spell out the characteristics it seeks in a new board member, and resign if they don't get them, the board will lack essential skills leaving it functionally incompetent and blind to risks that matter. A NED team with significant gaps in its knowledge, skills and experience is also a disaster waiting to happen.
When a government agency fails, an adroit politician, supported by the government's media machine, will deflect blame to the agency and its leaders. This has already happened at the FCA following a botched press briefing that released a maelstrom of criticism, much of it well deserved. The FCA chairman has said that the board has learned lessons from the experience.
But the fundamental problem remains. The seeds of the next disaster may already have been sown by the Treasury's wish to maintain control of its progeny through selecting the FCA's board members. The FCA board should confront the issue.