Tom Upchurch | July 13th 2012 | @EG_Finance
Wanted: Chief Executive Officer for Major Financial Institution
Requirements: Honesty, integrity, a backbone
Locations: The Western World (predominantly areas of Anglo-Saxon heritage)
Bonuses: Subject to negotiation with an irate public
The recent LIBOR-fixing scandal at Barclays has left them without a CEO and quite possibly a Chairman to boot. Barclays was just the first of a number of major financial institutions which will be implicated in this scandal. Therefore we can expect to see many more CEO-wanted adverts - like the one above - over the next few months.
How much of this crisis in culture is down to failures in leadership?
I asked Professor Andrew Kakabadse, author of ‘Essence of Leadership’ and former Vice-Chancellor of the international Academy of Management, for his interpretation of the leadership crisis gripping the banking sector.
Q: Where have the current problems affecting management and leadership in the banking sector stemmed from?
A: The current problems have arisen from being trapped by a cycle of ever-increasing transactionalism, which basically means investing in paper without paying due attention to the infrastructure needs and investment requirements of the real economy. The dominance of neo-liberalism may have had some positive effects, but because there was no counterbalancing force, short-termism has become a religion.
Q: With the CVs of many financial executives featuring the same MBAs, economics degrees and specialised financial finishing schools, is it fair to say that The City suffers from a lack of diversity in its talent pool? Or is there more to this failure in culture?
A; I do not think that there is a lack of diversity of talent in the City or Wall Street. Yes, people qualified with MBAs, economics and finance degrees are common, but one will also find arts graduates, engineering graduates and a considerable proportion of people from the natural sciences. The challenges we face are not those of poor talent, but of a systemic failure.
Q: How have other commercial sectors, such as technology, seemed to produce a cadre of highly compensated yet widely admired leaders? What can banking learn from these sectors?
A: Other sectors do not face the same pressures of high debt, high liquidity, zero interest rates, and having to meet previous commitments to the same extent as does the financial sector. Others sectors are more in tune with the needs of real people, whereas financial services are increasingly isolating themselves from the rest of society. They cater to the rich and try to compensate themselves with high bonuses in a market of no growth but of high volatility. I am not sure that banking can learn from other sectors until fundamental change occurs and long-term investments become the DNA of this industry.
Q: What steps can banks take to improve talent management practices?
A: Other than trying to attract the brightest and the best, and provide for appropriate training and development which in fact most banks are doing, there is little more that can be leveraged from talent management approaches. Talent management of its own cannot handle systemic concerns. It can only facilitate making the system work better and that is difficult when the system itself is failing.
Q: In your view, what would the next generation of banking CEOs look like? What qualities would they possess?
A: If nothing else changes, much the same as we have now, which is short–term, transactional-oriented thinking; desperately trying to protect the financial base of their banks or funds at any cost, knowing that if one country were to default or one pension fund be unable to meet its commitments, trust in our financial system would likely disappear. As nothing is likely to change in the foreseeable future, the next generation of CEOs are likely to be even more intelligent, more financially savvy, more technologically capable and more ruthless than the current generation.
I deeply fear that the exit of Bob Diamond is not the end of this type of management culture in the City or Wall Street. We are not dealing with a “people problem”, but rather, face the prospect of a highly unpalatable systems collapse. I fear that there are many more scandals to come and these will not just emanate from the City but could appear anywhere in the USA or any European country. Our exposure to short-term transactional investment in the derivatives market leaves us all considerably vulnerable.
There you have it! The individual transgressions, greed and short-termism of banking executives are a symptom of a failing system, rather than the management practices of individual organizations or the leadership qualities of individuals. The problem is, who do we bash if the bankers are not to blame?