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.