We all knew the story of HBOS before yesterday's report.
Senior management ran a bank recklessly for its own gain.
That's it. One sentence summarises all we need to know. But it took seven years to say it and no significant penalties are likely even if this review gives rise to another review, which is all it is calling for after that period of time.
So what's the real story here? It's that the finance sector managed to cover up for senior bankers managing a bank recklessly for its own gain until such time as the issue was too old for action to be taken.
How do I know? Take this from Lex in the FT:
What blame should King George I, governor of the South Sea Company, bear for its collapse in 1720? The Financial Conduct Authority should reopen this cold case. The UK regulator is already reconsidering whether to ban ex-bosses of Halifax Bank of Scotland from the City. They ran the over-leveraged bank into the ground at huge public cost in 2008. That's almost as long ago as the South Sea scandal in the hive mind of finance, an industry with a conveniently short memory.
Some would say it would be a waste of time barring the monarch from holding a senior job in banking or broking. He has been dead a while.
But banning ex-chairman Lord Stevenson and Messrs Hornby and Crosby, who served as successive chief executives of HBOS, would be almost as feeble. Only Andy Hornby is still employed full time. He does not work in finance.
It appears as if the FT is joining in the exoneration game that has gone on. But not quite; they conclude:
Regrettably, compromised regulators will get away with barely a scratch. Back at the time of the South Sea Bubble, when standards were evidently higher, the chancellor of the exchequer was imprisoned in the Tower.
At least they recognise the real story is as much in the cover up as in the action by saying so.
So now the question is, how to we prevent such a fiasco again?
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The over – riding problem is greed.
Any new legislation or regulation must be built around dealing with that. Greed has to be accepted by the sector and Government as a risk. A lot of these problems were created by the incentive system as well which must also be looked at.
I believe that incentives (bonuses) should be got rid of as they encourage risk taking and rule breaking – motivated by greed.
I used to work for Tesco – as it was chasing the number one spot in retailing. The store managers used to get a portion of the savings from staff costs as an incentive to keep costs down.
The result? Too few staff on the tills and long queues. I understand that this incentive was removed eventually – mind you they also got around this by cross-training all staff to go on a till when needed so I’m not sure if this incentive still stands or not but it thought provoking.
It’s not just bonuses. It’s the constant demands from the City for year-on-year improvement. Make 100bn this year? You’re heroes. Make £99bn next year and you’re out of a job, your share price collapses and you are rubbish.
An astute and accurate observation which, as Pilgrim Slight Return (above) notes feeds down all the way to the bottom of every organisation in every sector, including now the third and voluntary sector.
And it is an extremly narrow one dimensional definition of “improvement” at work here which focuses exclusively on manipulating unit bottom lines at the very bottom of the funnel without any consideration of cross activity impacts on other parts of an organisation. The whole point of organisation is to achieve outcomes that are greater than the sum of the parts (known in systems terms as emergent properties). As many observers have noticed this stove pipe mentality actually results in outcomes that whilst on an Excel spreadsheet appear quantativley impressive are in reality less than the sum of the parts.
The whole approach is infantile in that it cannot and will not recognise and accept qualitative criteria. No sane and rational person would, for example, purchase a car and run it at a constant 60 miles an hour for 10 hours a day during the first year; a constant 80 miles an hour for 11 hours a day in the second year; andthen expect to run it at a constant 120 miles and hour for 12 hours a day in the third year on the basis that this represents an “improvement” in the performance of the vehicle.
Yet that is precisely what is expected of everyone and every organisation now. Back in the day, when one of us had one of those old multi band radios in the barrack room we occasionally used to fall about in hysterics at the disembodied voice of the radio Moscow announcer reading off reams of heroic statistics about the number of lorry loads of tomatoes produced in the Ukraine and the tonnage of steel coming out of the rolling mills in Magnetigorsk that week. It’s not so bleeding funny now. How did that happen and why did we not see it coming? Taylorist management, updated for the computer age, minus the Scientific prefix.
This shenanigans with the banks and finance, with the official regulatory bodies and the politicians in each of the Westminster gangs who provide the logistical back up and cover for t should be called out for what it is, financial and economic terrorism.
Dave
If you don’t mind I may well use your analogy of the car going faster over a longer period analogy of “improvement”in performance in a course I’m in the process of writing.
This one’s very good too: Taylorist management, updated for the computer age, minus the Scientific prefix.
I don’t understand how or why it has taken 7 years to publish a report on this. Apparently the last 18 months of delay were caused by two rounds of “Maxwellisation” (putting cricicism to those criticised so their comments can be taken into account before publiation) but here is an article making the case that that ridiculously slow process is not necessary anyway: http://www.standard.co.uk/business/chris-blackhurst-hbos-verdict-has-been-undermined-by-timewasting-tactics-a3117601.html
If the report was finalised when it was first ready, well over a year ago, there would still have been time for the regulators to take proper action within the 6 year limitation period. Even if the report was not finalised, I don’t see why the regulators could not have started taking action based on draft or interim findings.
Apologies – meant to put this comment on this piece.
It’s the same with wrongdoing by the police; by the time it’s uncovered those responsible are dead or retired. At least we can give those who are retired a very uncomfortable old age by trashing their reputations.
I don’t understand why the the people in charge of the banks firstly never got sacked for wrecking the company and almost putting it out of business, weren’t sacked, were given large pensions for life .
i understand all or most the banks were doing similar but that isn’t an excuse there is something very rotten wether it is the politicians being too young therefore thinking of themselves before their country, or the banks having to much power over themselves by loosened regulations, one things for sure the capitalists are going about trying to wreck their own system, what brings that about arrogance ?