Wednesday, September 19, 2012

Is Integrity Truly Pre-eminent in Delivering Effective, Long Term Organisational Leadership?



I was interested to recently read an article written by Sir Peter Ellwood, Chairman of Rexam, previously chairman of ICI and group chief executive of Lloyds TSB and TSB Group before that. In that article he states that “the overriding leadership quality for manufacturers or bankers is integrity ---------- Integrity of decision-making is about doing what you know to be right, even if it leads to adverse consequences”. It was an excellent article and Sir Peter was arguably one of the better leaders of British banking as the sun went down on the twentieth century (shall we say a Frank Lampard compared with the Lionel Messi who was Brian Pitman, the previous Group CEO and subsequently chairman of Lloyds Bank).

However, perhaps integrity (defined in my Penguin English Dictionary as an “uncompromising adherence to a code of moral values”) is rather in the eye of the beholder and best viewed with hindsight and nostalgia when the details and implications of their operational application have faded in the mists of time. In this respect I am minded of the many generals and admirals of the two World Wars who rightly consider that they operationally achieved, with integrity, the objectives agreed with their political masters, whilst acknowledging the known substantial “adverse consequences” for many on both sides and also that there will be unknown “adverse consequences” for many in the future as a result of their decisions. However, like so many lower rank officers and troops at the “sharp end”, they tended to avoid voluntarily  discussing the “adverse” operational, on the ground, implications and consequences of what was considered at the time to be decisions and actions based upon a highly principled moral code. Perhaps Sir Peter’s piece would have achieved even greater impact if he had briefly expanded on the practical implications of his definition of integrity, translated into operational details and their resultant “adverse consequences” over the short and long term in order that readers might reflect on whether this is consistent with their own moral code and sense of integrity.

I am sure that the enhanced cost efficiency, rationalisation and subsequent “merger” of TSB Group with Lloyds Bank was indeed logical and “right” within the context of the opportunities available as a result of the financial liberalisation of the time and was wholly consistent with the code of moral values, perspectives, priorities and practices of British commercial banks at the time. There may be some objection to my contention that TSB Group was viewed by organisational, sectoral and political leaders at the time as a slumbering giant from which vast profits could be made through significantly enhanced cross-sales to its substantial and loyal base of relatively financially unsophisticated customers, marketed through an extensive national branch network, with a staff who had a loyalty, allegiance and dedication to the organisation probably unmatched within any of the commercial banks. The opportunity was therefore envisaged to leverage these key success factors to ramp up profits by serious multiples for the benefit of key stakeholder groups. However, this could only be achieved through making redundant some 6-7000 staff, out of a total of approximately 29,000. I should say that whilst I worked within TSB Group at this time I was not one of these 6-7,000 individuals; nor was I one of those unfortunates who, with their families, within a 2-3 year period, had to move first from Manchester to London, then to Birmingham, then to Glasgow, as business units were moved to low cost sites in the drive for cost efficiency. Some might respond to this interpretation of the motivations of converting TSB Group from a mutual to a public limited company as blinkered, preferring to focus upon issues of competitiveness, corporate governance and the absence of the required capital adequacy for survival, as justification for de-mutualisation, but I will address this alternative perspective later.

The reality of business leadership is that there frequently are adverse circumstances for some stakeholders in taking decisions with the objective of achieving optimal business performance. Ultimately, therefore, we may only assess whether the dominant coalition within an organisation applied integrity in decision making through an assessment in absolute terms of both the positive and adverse consequences to the business and its key stakeholder groups of those decisions
      
Staff in TSB Group were demoralised and de-motivated, wondering when rather than if the axe was going to fall. The result was that customers, from seeing smiling, enthusiastic staff who were, with them, members of the TSB community, now saw hollow cheeked individuals, desperately trying to sell them life policies, credit cards and payment protection insurance, when they only wanted to deposit £20. Cross-sales did creep up but at what cost to the organisation over the long term; the cost/income ratio is meaningless compared with the cost of a unique long term relationship with customers which did not exist within any of the commercial banks with whom I have subsequently and previously been employed or which I have researched. Leadership individuals came and went, seeking to embed their own dominant logic, leaving staff and customers bemused, bewildered and confused. Was this the big picture and vision to which Sir Peter referred in his article?

This is certainly not a personal attack on the leadership of TSB Group of the time, since pretty much all of the leadership of mutual institutions in the UK (predominantly titled building societies) caught the bug spread by financial liberalisation and these institutions, the mutual financial services sector, with its broad stakeholder perspectives, are, with few exceptions, now no longer of this world in the UK. Lloyds TSB is now 40+% owned by the British Government and has recently sold 600+ branches to Cooperative Bank, which follows a more stakeholder community based set of values, principles and priorities, one geared to ensuring that the sun comes up every morning and the moon every night, rather than preferring to appear to financial analysts and commentators as shooting stars.

The leaders of Co-operative Bank, Nationwide Building Society in UK, also RaboBank in the Netherlands considered long and hard on the opportunities available as a result of financial liberalisation but unlike mutual organisations such as Bradford and Bingley, Northern Rock, Halifax and TSB Group in the UK did not rush headlong into universal banking, casting aside a collaborative and cohesive dominant logic and culture which had sustained them for over a century. They rather moved more slowly to take advantage of the developing opportunities, at a pace which maintained the cohesion and allegiance of all stakeholder groups.  These institutions have weathered the prevailing storm within the financial services sector much better than commercial banks, including those who converted from mutual to public limited company status during the 1990s, requiring no bailouts or nationalisation. This was achieved on the basis of differences in long term vision, principles, perspectives and priorities, reflected in business strategies and, equally importantly, operational leadership decisions and issue resolution which reflected the nature of the dominant moral code and “integrity” within these organisations.

Many might indeed argue that the mutual sector in the UK was disassembled on the basis of:-
·         Perceptions that it was an outdated concept
·         Concerns regarding corporate governance and accountability

this in addition to the opportunities available through financial liberalisation. However, as we have noted in these recent years of crisis within the financial services sector, perhaps concerns of corporate governance and accountability in practice apply equally, if not more, to commercial banks, resulting in a collapse of credibility and trust. In contrast, co-operative banks and surviving mutual institutions have enhanced their credibility, retail banking market share, remaining as pillars of stability and reliability in a sector battered out of recognition.      

In closing I would conclude that hindsight is indeed a wonderful thing and in general leaders tend to and indeed are compelled to go along with the big wave which offers the appearance of substantial market opportunities. However, the above indicates that integrity is of value only to the self-esteem of the individual who thinks that he has it, this unless it is linked to an appropriate viable and holistic vision and, more importantly, appropriate values, principles, perspectives and priorities geared to the sustained survival and growth of the organisation, also for the benefit of all key stakeholder groups and the society within which it operates and of which it is a part. The leadership of the majority of mutual institutions in UK in 1990s confused integrity with the lesser traits of benevolence and generally meaning well, lacking the appropriate experience, insight and judgment within a financial services context increasingly dominated by “traders”, losing sight of the fundamental values, principles and priorities which had brought them into being, which merely required to be adapted, rather than binned. The result has been substantial “adverse consequences” for a wide range of stakeholders inconsistent with a moral code which fosters long term survival, stability and long term optimal performance.   

TSB Group is no more, Lloyds TSB Group is partly nationalised, with their shares struggling to hold a value of 30 pence when 15 years ago they were worth around £8+. Co-operative Bank has just bought 600+ branches along with their deposits from Lloyds Bank Group. The mutual sector in the UK is defunct, whilst acting as a force for financial stability in many European societies. Perhaps the overriding leadership quality is not integrity, which appears in fact to be a meaningless term in relation to leadership qualities, but rather the definition and consistent application of values, principles and priorities which resonate with all stakeholders in respect of operational decisions and issue resolution and are consistent with optimal long term performance for the organisation and the society of which it is a part.  Only then can any “adverse consequences” be justified with hand on heart in the minds of those individuals who profess to take a leadership approach based upon integrity.        

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