There are continued intakes of breath, tutting and shaking of heads at the antics of the banks. Barclays is in for the most opprobrium, but the banking community has been viewed as villains ever since Northern Rock was the first to have the wheels come off in 2007 – yes, it’s nearly five years since this all kicked off.
Incredibly, the Bank of England has also become tainted by the latest scandal and of course politicians cannot escape the howls of derision as their unseen hand in banking affairs is none the less detected.
Let’s put a few less mentioned facts out there on Barclays. Firstly, the $450bn fine. $75bn of this was by the FSA – the rest was US regulators so let us remember that the bank is in the global cross hairs – not just the UK. Though the bank has been accused of casino banking and mixing its investment and retail balance sheets the rate fixing problem related to the whole of Barclays and its relationship with the wider interbank market.
Let’s also remember that with government support Barclays bought the wreckage of Lehman Brothers in 2008 – so far the biggest bank failure in history. Diamond, his COO and the Chairman have resigned, but will the removal of the head cure the rot amongst the other 140,000 employees?
As is so often the way, the leadership carries the can (rather faster than politicians usually do), so that’s OK then – or is it? Do we really understand what has gone wrong? How far do the problems extend beyond and beneath the senior leadership? How do we prevent such things happening again? Judging by the repetitiveness of bank management errors it seems that the lessons are either not being learned or not learned fast enough.No matter what the failure, be it RBS under Goodwin or Barclays under Diamond, the root cause is the failure of leadership. But how can we say it is leadership when a) Diamond had achieved significant financial results for Barclays and b) it was not him personally that fixed the rates? It appears that he was an effective leader. He got things done and huge numbers of people were marshalled to achieve good results for the bank. Was it a case one error that he is being punished for? This is highly improbable which means that Diamond is what I call an EBL – an ‘effective but bad leader’. We can point to many others in history in this category. Robert Maxwell is a great example. Generally only effective leaders make it to the top but because of narcissism, insecurities or other personal flaws they might just really be bad leaders. There are IBLs, but they don’t last long. EGLs, well, we need more of them. More of the likes of Ian Cheshire, Lord Patten, Digby Jones, Barbara Cassani. Leadership effectiveness skills are well understood, demonstrable and in most cases trainable too. Not all of the great business leaders would be labelled as ‘born leaders’ and not being a born leader is not necessarily an impediment to progress. But what defines a ‘good’ rather than an effective leader? This is more ephemeral and the problem we have is that generally leaders are measured on effectiveness and results. How they got the results and the price of what may be unacceptable or unworthy practice is very rarely evaluated. For example: some very successful businesses have very high staff turnover. That’s a cost that may be ‘blind eyed’ if the results are good, but it’s a sign that leadership is not matched by fellowship and that the leadership is not sustainable. Bad leaders usually preside over, create or tolerate a bad culture. Tellingly, before Diamond resigned he said that the conduct of the fixers was not in line with “the values or culture of Barclays”. This was one of the most significant statements that he made and it has not been picked up enough by investigators since. What he was really admitting was that given the amount of time that the fixing had been going on for it was in fact ‘exactly’ in line with the culture. What is culture? It’s ‘the way we do things around here’. Leaders may set the culture by their explicit instruction, tolerance and the sorts of things they reward. In so doing the leaders set the cultural tone. This is why it can be very hard for the replacement leader to correct the flaws. They often have to remove far more management to enable progress – and removing more leaders removes the disciples of the bad culture. Good culture in turn is a reflection of good values that are brought to life day after day. It cannot be lip service or an act. It has to be authentic. Bob Diamond was hired for his previous achievements or his values. How were these assessed? This brings us to the crunch question. How do we prevent this happening again? Clearly we need talent; skills for the business and the softer skills of leadership. But if Diamond was interviewed for the job with a view to a highly sensitive military or security role his flaws would probably be identified before he was hired. The methods of recruitment as directed by boards will have to be expanded to gain far deeper insight into people. But this cannot be done before governing boards also assess the values and culture that is going to deliver the best results for the business and in turn what leadership skills, characteristics and values are essential in senior management to deliver integrity as well as results. We really do have to start at the top and right now, Mike Rake, deputy Chairman of Barclays should be doing some soul searching of the sort that is not habitual in governing boards. Stephen Archer is a business analyst and founder of UK business consultancy Spring Partnerships.
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