banks

Leadership: Libor, Barclay's and Executive Accountability

I have been fascinated as I've read the reports on the investigation into interest rate manipulation by Barclay's and other banks, the resignations of that bank's Chairman and CEO and, particularly, the "spreading of blame" that's now occurring as everyone who knew better is figuring out a way to run for cover.

Here's my take on this from the leadership perspective:

For all that Mr. Diamond explained to the Parliamentary Committee that his people had been asking the US and UK regulators questions about what they were doing/could do - and being given no specific guidance regarding their actions - they knew better.

People inside an industry - or holding any particular job, for that matter - know and understand better than anyone else the nuances and consequences of their actions and decisions.  That's why they take those actions and make those decisions.

Because, one way or another, those actions and decisions serve them.

So...

Should there be more and better regulation - particularly for those industries that are supposed to exist not only for profit but also to support the society in which they operate?  Sure.

Will regulation ever address all the agendas and actions of the individuals within any industry?  No.

Does it then fall upon the most senior executive to make clear - to the point of termination - that any action that could conceivably mar the reputation of the organization is unacceptable and will not be tolerated?  Yes.

And that's where Mr. Diamond and his colleagues continue to go wrong.  They're happy to say, in retrospect, that what was done "sickened" them - but that doesn't do anyone any good.  In fact, that, too, is self-serving.

Ultimately, this becomes about you - not them.  If there are reputation-risking actions and decisions going on in your organization, you either know who or where those are taking place.  That makes it your responsibility to stop those actions - now.

This is about morals and ethics and integrity.  Not business.

It's time for leaders to lead.

LEAN: Lessons Learned from Banking Regulation

There's a fascinating piece in Joe Nocera's New York Times column today about bank regulation and complexity.  In it, he raises the question of whether the over-complexity of new banking regulations worldwide are going to cause greater difficulties and possible failures than a more sensible, streamlined approach.

This is an easy one. The answer is: Yes - because complexity causes failure.

Big failures or little.  Lost time or opportunity. Lost money, customers, employees, profits, revenues, parts...you name it, if there's complexity built into your system, there are losses and failures going on.

The problem is, in most cases, it's hard to see them.  That's because, in most cases (and unlike what's going on now around the world with banking regulations) the complexities are so deeply built into the way you do business that you don't even see them anymore.

That's actually why Quality, Lean and all the rest exist: to hunt out the variation (for which read 'complexity') in your systems.  Once you can see them, then you can decide whether or not they serve your purposes.

Just so you know - in most cases, they don't.  They're there because someone at some point came up with a solution that made sense at that moment that was reactive to a situation that no longer exists.  Or wasn't as well thought out as it should be.

What we know is that the banks need to be better regulated - simply because the world can't afford another meltdown like we saw in 2008.

What we also know is that, not only because of Dodd-Frank in the United States, but in looking at banking regulation being imposed around the world (and, yes, that includes China, too) there is no coordination or consistency.

The threat - at least by the banks - is that the regulations are so overly complex and onerous that they won't be able to operate or keep their best talent.  That may or may not be correct, but, let's face it, they've got skin in the game and a real reason for not wanting to be held accountable.

Putting their arguments aside, we come back to the same issues you need to be addressing in your own enterprise:

  • Where does complexity exist?
  • Why? What was the purpose of those policies or procedures?
  • Do they still apply?
  • If no, how do we get rid of them without causing replacement complexity?
  • If yes, how do we redesign what we've got to reduce the complexity?
  • And, finally, do we have the right measures to ensure that this - as well as other - complexities in our system are findable and addressable?
Go through that mini-assessment and you'll suddenly find that there are LOTS more profits available in your existing organization than you currently gain.  Fast and easy, too.

Then you can start taking on the hard stuff.

For more information on successfully implementing Quality and Lean, take a look at:

Executive Compensation: How Fear, Scarcity and the Wrong Measures Drive the System

Over a decade ago, I wrote an article entitled, "Worth Every Penny" for a local Silicon Valley business publication. My position was that the entrepreneurs who were building their dreams into companies should be compensated for the work they were doing.

My reasons for making that particular case at the time were that:
  • The entrepreneurs were building a new industry
  • They bootstrapped in for months and years before getting their funding
  • I had no idea that they were burning cash as stupidly as they were once they had it - nor that their investors were allowing them to do so.
This was the beginning of the executive compensation anger that is so rampant now.  Frankly, had I known then exactly how insane the compensation system would become for executives in all industries, I'd never have written the article at all.

If we want we can go into the blah-blah-blah of:
  • The reactive VC/Angel investment model of the day that led everyone to jump on the bandwagon and get their bucks in first (which led, interestingly enough, to the need to legislate to protect stupid investments by dentists - or stupid dentists, you choose)
  • The fear that someone else would take over the market before there was - or would be - a market
  • How eyeballs were considered currency...
You know the rest.

In fact, as you look at the newest social media IPOs out there, in some ways we're seeing the same thing.  Plus ça change...

But I digress.

Today, as the Governor of the Bank of England is calling for cuts in bankers' compensation, I listened to an interview with Ralph Silva, Director and Banking Analyst with SRN, talking about that subject.  He said:
"The assumption is that the actual shareholders care. The truth is if you tell the shareholders how much these senior executives are getting paid they're probably going to want them to get paid more. Why? Because they want the best of the best and the shareholders simply don't have a problem with these huge salaries."
Yes, in fact, they do have a problem with them.  Fund managers - in the form of shareholders - may not...but even they're getting a clue.  Because, just as eyeballs were considered currency in the lead-up to the DotCom Bust, so, too, are the measures of executive "success" tied to completely wrong measures now.

What, you ask, are those measures?  In too many cases, as long as the guy - or, in far fewer cases, woman - shows up, the money flows into their pockets in the form of cash, stock, options, perks....You name it.

The logic of this argument comes from the thought that there is a scarcity of talent to run these organizations.  That, too, is wrong.  In fact, too many executives currently in those positions make exactly the case for their own demise - because, clearly, the decisions they're making aren't good ones.

How do we know?  Because the measures that underlie what is considered "success" in these organizations are flawed.  Where there is no growth, there is no success.  Where there is only short-term thinking, there is no future.

The problem is, by the time the shareholders Mr. Silva is talking about realize their mistake, the executives in charge will have moved onto greener pastures in their next jobs.

It's time to get a clue.  Executive compensation is out of whack - but it's fixable.  Change the measures and create accountability for those in their positions.  At the same time, forget the fear and scarcity argument and look at the real talent pool that exists.

Very quickly and without too much difficulty, compensation and audit committees will find that there are a lot more good choices - at much more reasonable prices - than they think exist now.