HBOS Leadership without the benefits of hindsight

May 10, 2013

180px-ripvanwinkle.jpg The following post anticipated the financial crisis of 2007-8 under an earlier title. HBOS changes: Too little, too late? It is reissued following the news this week of the fall from grace of the bank’s three leaders

Over the last few weeks, pressure has increased on HBOS executives following a government report and calls for former CEO James Crosby to give up his knighthood and part of his pension rights. The Original post indicates the perspective in 2007.

ORIGINAL POST

This week [Nov 2007] saw a little-heralded leadership change in the retail division of the financial giant HBOS. When a bank changes one or two members of its management team, it does so to reassure investors of continuity as well as to signal change. Has HBOS been too complacent over its business environment? Are the changes too little, too late?

According to a BBC report this week:

HBOS has announced a revamp of its retail division, including the departure of its head Benny Higgins … finance director Phil Hodkinson will [also] retire at 50 next year, and will be replaced by a former incumbent, Mike Ellis …”The structural changes we have introduced in our retail business are right for the group,” said chief executive Andy Hornby. Mr Higgins, who moved from Royal Bank of Scotland last year to head the retail unit, will leave HBOS at the end of 2007. [CEO] Mr Hornby told the Reuters news agency that Mr Higgins’ departure was not related to a recent 8% drop in profits at the retail unit. The business was hit by a sharp drop in its share of mortgages earlier in the year after a new pricing strategy went wrong, although the bank says its share has since recovered.

So there we are. No change there, then. Banks are as prone to jolts and change as any other business. Arguably they have become as accustomed to dealing with change as companies in many other business sectors. Their corporate advertising increasingly seeks to present images of innovative and dynamic set-ups. Yet, they also work hard at maintaining a corporate image of stability and reliability. Which just goes to show that effective creativity in advertising can be pretty challenging. How would you send out a convincing signal that you are reliable and adventurous, dynamic and prudent?

HBOS doesn’t stand for anything

I used to think of HBOS as an abbreviation for two big names in Banking after a recent merger, namely the Halifax and Bank of Scotland. Wrong. The (usually) reliable Wikipedia tells me we shouldn’t connect it with some earlier entity or entities. Same with ICI. which is initialized not an abbreviated Imperial Chemical Industries. Anyway, let’s just say that what is now HBOS used to be the Halifax Building Society of Halifax, Yorkshire, and The Bank of Scotland of Edinburgh.

Background to the story

Earlier this year [2007] the bank announced satisfaction with its profits. CEO Andrew Hornby said HBOS was optimistic about the UK economy and growth in its main markets, and that the UK business environment was “generally benign”.

How benign is benign?

Hornby’s view was not widely shared

“Overall the quality of these figures looks poor and the guidance of 2007 on loan growth, margin, costs and bad debt looks disappointing,” analysts at Fox-Pitt, Kelton said in a note

. AS it turned out, the HBOS retail business environment was to prove far from benign. Over Christmas 2006 there had been unfortunate publicity for the bank’s role in the sad tale of the collapse of Farepak. In 2007 it became clearer that the shared business model of the retail banks was failing. This relied on offering ‘free’ retail banking, partly subsidized by high charges for non-agreed overdrafts. HBOS faces substantial losses. It also proved non-competitive in mortgages, and failed in its retention strategy.

Anatomy of a high flier

In 2005, CEO Andy Hornby was assessed as one of the FTSE’s ‘power players’ for among other things being remunerated with ‘biggest directorship’ of the FTSE 100 at around £ one million sterling for his HBOS responsibilities. The young city high-flier was a former Blue Circle and Asda executive, and could take credit for his part in steering through the HBOS merger successfully. The deal was a coup for The Halifax. However gently the merger was presented, Halifax emerged with the better hand. Hornby became its CEO, and Lord Dennis Stevenson (another Halifax man) became Chairman of the new company. The Bank of Scotland had recently lost out in several take-over bids, including its wooing of National Westminster Bank, when it had lost to its bitter rival, the Royal Bank of Scotland.

What’s going on?

Perhaps researching this blog has made me over-sensitive to leadership battles. But the story leaves me with just that suspicion that there is more to unfold. Has HBOS been complacent over its business environment? The kindest that can be said was that it did not rush into hasty action recently. More unkindly, maybe it could be accused of being too reactive. I haven’t picked up the signals of stakeholder discontent that indicate real ‘trouble at the top’. No comments about excessive remuneration packages. But those city analysts have already sent out signals suggesting the business environment is not as benign as HBOS would like it to be. I have a very small shareholding in one of the group’s financial products. I’m not planning on selling. I’m not planning on acquiring any more either. And maybe there will be a business case to be written on leadership style and proactivity.


Leadership Lessons from HBOS and the new social class of Loads of Money Elites

April 8, 2013

Loads of moneyThree previously much-lauded leaders from the banking group HBOS are severely criticized in a parliamentary report in the UK. There are powerful lessons to be learned. Insights from a new social class indicator are also worth noting.

This week a popularization from an academic study suggested a new model of social class in the UK. One category is being considered to be at “the top” of the seven classes, and receives the meretricious label of the elite group. Equally clear is the group occupying the least desirable social niche, the newly identified Precariat.

The abuse of labels

One of the lead researchers, Professor Mike Savage of the London School of Economics is quoted as saying

“It is striking that we have been able to discern a distinctive elite, whose sheer economic advantage sets it apart from other classes… At the opposite extreme, we have discerned the existence of a sizable group [the Precariat] – 15 per cent of the population – which is marked by the lack of any significant amount of economic, cultural, or social capital.”

Is it a simple linear scale?

My reading of the popular reporting of the study is that the seven categories are being placed along a “top to bottom” spectrum as if a simple linear scale exists through which individuals may or may not be socially mobile. But that is a different and more technical story.

My main point is that the bankers at HBOS serve to illustrate the new social concept labelled the elite ‘class’. Weber used such classifications as idealized descriptions of his sociological concepts. Here they are value laden. The elites are “top” people, because we attribute positive connotations to those with loads of money. They are seen as the worthy wealthy. Our Chancellor, George Osborne, is among those vocal in identifying the undeserving and feckless at the “bottom” of the social pile.

The HBOS Three

To return to HBOS, the three members of the elite class named and shamed in the report are Former HBOS chief executive Sir James Crosby, brilliant Harvard graduate Andy Hornby recruited by Crosby, and who replaced him as CEO in 2006, and Lord Stephenson, chairman of Halifax [the H of HBOS]

Let’s cut off their honours

The commission report recommended social sanctions on the three leaders, withdrawal of honours, and prohibition from posts involving financial dealings.

The Guardian unsurprisingly was indignant:

“Primary responsibility for these failures should lie with the former chairman of HBOS, Lord Stevenson, and its former chief executives, Sir James Crosby and Andy Hornby,” concludes the report. It is astonishing that, almost half a decade after the implosion of HBOS, a parliamentary commission with a roving brief has provided the first official account of what went wrong.

Royal Bank of Scotland will always hold top spot in British banking’s hall of shame by virtue of its sheer size and the ludicrous top-of-the-market purchase of ABN Amro, but HBOS stands alone “as a home grown failure in traditional banking”, as the report puts it. The commissioners have killed stone dead the notion that HBOS was, in some vague sense, an innocent victim of the hurricane in financial markets around the time of the collapse of Lehman Brothers in 2008.


Who wants to hire leaders of failed banks? More organizations than you might think

June 7, 2009
Andy Hornby

Andy Hornby

Leaders of failed financial institutes have been widely castigated, and their competence challenged. But some remain in high demand. Andy Hornby is a case in point

This week, Alliance Boots was reported to be close to appointing Andy Hornby as CEO of its successful international business.

Alliance Boots is Europe’s largest wholesale and retail player in the pharmaceutical industry and employs 115,000 people. It is currently run by the Italian billionaire Stefano Pessina, who holds the post of executive chairman. “Alliance Boots confirms it is currently engaged in discussions with Andy Hornby, who is a leading candidate for the role,” the firm said in a statement.

Mr Hornby, in charge of HBOS at the time of the bank’s near-collapse last autumn, is among several candidates for the post. Before moving to HBOS he spent time in senior posts at supermarket giant Asda.

If we believe the rumours [June 7th 2009] Andy Hornby is back in fashion.

Hornby, formerly of HBOS, remains be one of the more highly regarded of recently deposed financial leaders.

LWD had reported positively on his leadership style after his interview with the BBC’s Robert Peston a few months before the banking crisis reached its peak (or do I mean trough?).

We had been tracking his story since the time that Mr Hornby had been assessed as one of the high flying British business leaders. He had enjoyed considerable success in his appointments Asda and Blue Circle, and then at the Halifax building society. He had also gained particular credit for the way he handled the Halifax merger with the Bank of Scotland, although his style was seen as less dynamic than that of more entrepreneurial banking leaders.

What’s going on

There are several interesting questions arising from the story of the re-emergence of Mr Hornby as a credible leader. Why should he now be the ultimate choice as its leader by a successful firm such as Alliance Boots? What explanation might be offered for the rumored appointment?

I believe there is a clue in the information provided above. Whatever explanation you might come up with, it helps knock on the head simplistic beliefs that all discredited banking executives have no further prospects of gainful employment in senior leadership positions.


Robert Peston interviews Andy Hornby of HBOS

October 5, 2008

Andrew Hornby, head of HBOS, is notoriously discrete. In a rare interview with Robert Peston after the tsunani week of mid September 2008, he predicts an 18-month long haul in financial markets, and house price deflation, and identifying shortage of credit as the primary causal factor of the credit crunch

The interview took place in advance of the Tsunami week in the world’s finance markets, and makes no mention of the dramatic events that were about to befall HBOS and its leader. It retains merit because it permits a ‘before and after’ analysis

Pressed on the bank’s treatment of customers, Mr Hornby identified a triple whammy for consumers of food prices, fuel costs and utility bills, resulting in less discretionary income to save. The key to an unblocking of illiquidity will be the US housing market, where a return to health will then accelerate global confidence.

Hornby disagreed that HBOS had irresponsibly managed leading over the last few years, but defended its current cautionary stance and restricted lending.

Peston: Not a single senior banker has resigned or been fired [That can’t be right unless Peston is referring to HBOS rather than bankers in general].
Hornby: We are taking responsibility, which is different from being fired.

Peston: Morgan Stanley at the end sold short.
Hornby: No comment, [but pointed to how quickly the markets cleared.]

RP outlines AH’s his glittering career What had been learned? Planning for (and dealing with) uncertainties. Later in the interview AH returned to the inter-connectedness of global factors, and need to keep a five year planning perspective [by which time the long-term trends in housing and finance will have been restored.

Peston: Are you profiteering in current circumstances? [By increased charges to customers]
Hornby: No, we in UK are competitive internationally.

The interview format remains a one-dimensional glimpses of leaders and their competencies Overall, a competent but unremarkable rather low-key performance. Strengths. Reminded me in assuredness and confidence of an interview by Louis Gallois of EADS. A leader able to reassure and communicate trust in his competence. The style seemed particularly appropriate for the current circumstances.

Within a week he was defending the proposed takeover of HBOS by Lloyds TSB