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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