Regulation

Andrew Hill

The sense of shock in London about the allegations levelled against Standard Chartered goes well beyond the stock market where – as of mid-morning on Tuesday – the shares were down by nearly a quarter.

The group is virtually the only large UK bank not to have suffered serious reputational damage over the past five years. That’s partly because its operations are mostly outside the UK and other developed markets, partly, the bank would say, because of its strong culture.

As a result of that unique position – and the high reputation of its senior management — it was the safe harbour of choice for government ministers and their advisers in autumn 2008, when the rest of the UK banking sector was on the brink of collapse. The recapitalisation and rescue plan for the industry, later copied elsewhere, was cooked up in its boardroom, with the help of its top executives, generating a mass of laudatory coverage. 

Nearly four years after the Wall Street bailout, the beneficiaries of the US government’s support are battered and unpopular, but still in business. Meanwhile, the regulators that rescued them are in trouble.

Andrew Hill

“I can’t be confident about anything after learning about this cesspit” – Paul Tucker, deputy governor of the Bank of England, to the House of Commons Treasury committee, July 9, 2012.

Paul Tucker’s disgust at the Libor rate-rigging scandal (echoing business secretary Vince Cable) sent me back to records of the last time a foul stench of rottenness overwhelmed the UK parliament: the “Great Stink” of 1858. In that year, the smell of raw sewage, decanted into the Thames through overburdened sewers, reached the Palace of Westminster. It prompted emergency debates on “the state of the Thames”, in which R.D. Mangles, MP, told the House of Commons (as reported by Hansard): 

Andrew Hill

Jeff Bezos is famously smart but I wonder whether he has thought through all the political implications of Amazon’s strategy of becoming back-office ecommerce infrastructure provider to the world.

The first part of FT colleague Barney Jopson’s series on the etailer was full of insight, but it was the comparison between Amazon and investment banks that struck me most forcefully. As Barney writes:

One investment banker says Amazon’s position is reminiscent of Goldman Sachs’ dual role as a broker and trader at the centre of capital markets. “People complain about conflicts of interest. But you still have to do business with them.”

Like Goldman and others, Amazon has set out to simplify the life of its clients, so they can concentrate on what they do best.  One business identified by the FT investigation – RJF Books and More – has delegated the “selling, shipping, customer service, payments and complaints” functions to Amazon, which left me wondering what else was left for RJF to do. Simplification was a strong theme of my recent trip to Silicon Valley, where countless start-ups, and a few larger businesses like NetSuite and Salesforce.com, are offering businesses the opportunity to “plug in” their operations to outsourced back-office services and payment systems. 

Andrew Hill

Bob Diamond arriving to give evidence to the Treasury Select Committee on interest rate fixing. Getty Images

Bob Diamond arriving to give evidence to the Treasury Select Committee on interest rate fixing. Getty Images

Bob Diamond’s keenly awaited appearance before the Treasury select committee promised much and has so far (it was still going on when I broke off to write this post) offered very little for those seeking to know more about the Libor rate-fixing scandal.

But I think the former Barclays chief executive’s responses have shed light on one puzzle: how did the bank underestimate the public revulsion to the outcome of the investigation so badly? The short answer: the bank thought it would receive more credit in the court of public opinion for having helped expose the mess. 

Andrew Hill

Barclays has finally got the order of resignations the right way round. Bob Diamond’s departure – and the temporary restoration of Marcus Agius as chairman, a day after announcing his own exit – hands the can to the man who should have carried it in the first place.

As I wrote in my column on Monday, after Mr Agius said he would go, the resignation of the chairman didn’t mean Mr Diamond had “dodged the bullet aimed at both of them”.

Yet I still think there is worrying evidence that Barclays senior directors are in denial. In ringing the wagons against outside attack, they seem to be pursuing the line that talented individuals have been laid low by external “events” – the word used in Mr Agius’s resignations statement (now rescinded). 

Andrew Hill

As his job security plummets in line with Barclays’ share price, Bob Diamond is haunted by what he said in the BBC Today Business Lecture last year about culture:

Culture is difficult to define, I think it’s even more difficult to mandate – but for me the evidence of culture is how people behave when no one is watching.

But Mr Diamond didn’t suddenly wake up to the importance of a strong corporate culture after becoming chief executive of Barclays. He’s been talking about it for years and mainly with reference to his “no jerk” rule at Barclays Capital, the investment banking arm he used to run and that was home to the trading “dudes” skewered in the Libor-fixing scandal. Here he is talking about the rule in an interview with The Times last December:

If someone can’t behave with their colleagues and can’t be part of the culture, it doesn’t matter how good they are at what they do, they have to be asked to leave. You know what a jerk is when you see it. If we ever ignore the rule it always comes back to haunt us.

 

Andrew Hill

It was “values” day in many McKinsey offices on Friday – the annual occasion when staff take a break from client work to reflect on the principles underpinning the management consultancy. Rarely can they have had before them a case study as timely and as dramatic as that of their former head, Rajat Gupta, who was convicted that day of conspiracy and three counts of securities fraud related to trading in Goldman Sachs’ stock by Raj Rajaratnam’s Galleon hedge fund.

At “the Firm”, the impact of Gupta’s decline and fall is still felt deeply. As I wrote last year in my analysis of how McKinsey was handling the scandal, “what shocks staff and alumni is that Rajat Gupta should stand accused of precisely [the] sins of self-enrichment and self-aggrandisement” that its legendary former chief Marvin Bower abhorred.

One former partner told me on Friday that “the most aggrieved groups are alumni and senior partners who knew Rajat Gupta and continue to be somewhat baffled by what led him to do this”. Another ex-McKinseyite, Roger Parry, now chairman of UK pollster YouGov, admitted to feeling “a little bit devalued and diminished” by the scandal.

But my sense is that while the trial brought punishment and humiliation for Gupta (who will appeal against the verdict), it did not add much to McKinsey’s embarrassment. The firm will not comment but no doubt it hopes the trial has drawn a line under the affair. 

Andrew Hill

Rupert Murdoch

Rupert Murdoch

It will be a shame if bitter and partisan debate over whether Rupert Murdoch is “a fit person to exercise the stewardship of a major international company” obscures the more important conclusion of the UK parliament’s culture, media and sport committee on phone-hacking: that he and his son James were wilfully blind to what was going on.

Whether BSkyB, controlled by the Murdoch-owned News Corp, is a “fit and proper” owner of a broadcasting licence is a question for Ofcom, the regulator, which has now entered an “evidence-gathering” phase of its probe.

But as even the dissenting members of the committee said on Tuesday, if the “fit person” line had been omitted from the report, they would have voted unanimously to back it, including the charge that the Murdochs oversaw a culture of wilful blindness. 

Andrew Hill

The greenest job applicants know that to make any sort of impression on their prospective employer they must at least know something about the company where they wish to work and the position for which they’re pitching. That lesson appears to have been lost, however, on many of the experienced hands seeking to join the boards of Britain’s financial companies.

Hector Sants – outgoing chief executive of Britain’s Financial Services Authority – used his valedictory speech on Tuesday to underline how would-be directors are failing even the most basic examination of their credentials for high office. 

Andrew Hill

The problem with conventional wisdom is that academics will insist on testing whether it is truly wise.

So the popular assumption that Lehman Brothers would not have collapsed if it had been Lehman Sisters (to quote, among others, European commissioner Viviane Reding and former UK minister Harriet Harman) seems to take a knock from a new discussion paper published by Germany’s Bundesbank. It concludes:

Board changes that result in a higher proportion of female executives also lead to a more risky conduct of business.

 

Andrew Hill

It’s awkward enough having to hand back one leaving present from colleagues, let alone two. So I think we can all agree that, this time, Hector Sants will stick with his decision to resign as the UK’s chief financial regulator.

Mr Sants will step down as chief executive of the Financial Services Authority in June. The first time he announced his resignation – in February 2010 – he was persuaded to reverse the decision four months later by the incoming Conservative government. He agreed to preside over the transition to a new Bank of England-led regulatory regime (plans for which he’d opposed, as did I), in the expectation of becoming deputy governor. But things have changed.

In 2010, I wrote that Mr Sants had chosen the three worst years in history to run a regulator, taking over as chief executive just before the run on Northern Rock in 2007 and presiding over the watchdog in a year in which the rest of the UK banking system came close to outright collapse. I also wrote that his premature departure would destabilise the FSA. The first judgment still stands. The second – not so much. 

By James Mackintosh, investment editor

Arise, Mr Fred Goodwin. The banker who single-handedly brought down the British banking system has had his knighthood stripped away, and no one is sorry. Politicians, the public and the press are united in supporting the move against the former chief executive of Royal Bank of Scotland.

The pitchfork-wielding mob is wrong. 

Andrew Hill

Politicians would like to think that Stephen Hester’s decision to give up his bonus marks the start of a mass renunciation of “excessive pay” by private sector bosses. It is certainly time the UK corporate and political world moved on and refocused on what is really important: i.e. how to restore growth. But far from starting a trend, the Royal Bank of Scotland CEO’s case is unique. Here are three reasons why: 

For the world’s financial elite, now might be a good time to be on a Swiss mountainside, protected by a cordon of armed police, and able to take one’s mind off things by skiing and popping into a private bank.