The failure of strategy has led to an era of fiscal, institutional, and legitimacy crisis with major moral tensions.
Five years after the financial crisis hit, almost destroying the UK banking system, we continue to try to understand the factors that contributed to the disaster. This was a disaster that, as the world knows, overwhelmed the Royal Bank of Scotland and HBOS to the extent that UK taxpayers are still majority owners of these banks (HBOS having been taken over by Lloyds).
The UK public may well be puzzled as to how the disaster happened and who, apart from the publically scapegoated and dishonoured ‘Sir’ Fred Goodwin, is responsible for its occurrence.
This month (April 2013) has seen the Parliamentary Commission on Banking Standards produce a report in a bid to continue to try and unravel what happened when private loss was made a public debt, and we slipped into a recession.
The Commission has been set up to consider and report on:
• professional standards and culture of the UK banking sector, taking account of regulatory and competition investigations into the LIBOR rate-setting process
• lessons to be learned about corporate governance, transparency and conflicts of interest, and their implications for regulation and Government policy
The report on HBOS is refreshingly willing to name names, and allocate blame to the leaders of HBOS at the time of the crash, naming in particular Sir James Crosby, Andy Hornby, and Lord Stephenson.
The (formerly) highly paid senior bankers quoted in the report continue to claim that the crisis was a sort of unforeseeable natural disaster (‘tsunami’ is a term used on a number of occasions). This report and the written and oral testimony collected by The Commission provides invaluable evidence of individual, group, and institutional dysfunction.
In particular, the main issues that emerge from the report are (1) that HBOS was doomed irrespective of the financial crisis; (2) the bank’s ‘retail culture’ played a role in perverting the aims of the bank as a customer service organisation, (3) that the HBOS board lacked banking, rather than retail, experience, and was (4) unwilling or unable to address issues of existential risk that were undermining the bank, even when brought to the board’s attention by a whistleblower.
The report raises questions for practising managers and for business school academics concerning how managers can manage large and complex organisations.
Hopefully this report will contribute to another lesson: how we teach future business leaders to sufficiently analyse corporate issues with responsibility and ethical practice.
Dr Ron Kerr, lecturer in Organisation Studies at Newcastle University Business School.