Northern Rock: The dog that didn’t bark in the night?

February 23, 2009
”]Sherlock Holmes [Silver Blaise]

Northern Rock was arguably the harbinger of the credit crunch for many people in the United Kingdom. But where’s the evidence of the impact of its new leadership?

Regular subscribers will maybe recall the story as followed in Leaders we deserve (see below for the various posts).

In September 2007 its story was presented as one in which an ambitious regional institution had dynamic but misguided leaders who developed a dodgy business model which had brought the company low. Exit leaders Adam Appleyard and Matt Ridley to much fury and anxiety among small investors and mortgage holders. But in hindsight, the leaders escaped the subsequent humiliation, and accusations of cupidity and worse meted out on those who were directly blamed for the failure of the larger institutions.

Although accused then, and ever since, of dithering, the Government, and particularly Alistair Darling may be feeling a bit more comfortable now of their treatment of the case. Their de facto nationalisation of the bank is no longer regarded as an irreversible swing to left-wing politics.

Hunt the leader

More recently, the unfolding events at Northern Rock have been described with very little mention of its new leadership. A few months ago, the public mood equated bonuses for bank employees as utterly unacceptable. It emerged that Northern Rock was about to pay a 10% bonus to its staff.

A Northern Rock spokesman refused to be drawn on how much money was being paid out, but pointed out that the staff-wide bonus scheme had been announced in October [2008]. He also stressed that no executives or senior management would benefit. The reward comes after staff met targets on repaying the bank’s £26bn loan from the government.

Even Vince Cable, of the Liberal democrats, and one of the most respected and level-headed of financial commentators in the land, felt compelled to describe the scheme as “indefensible …bringing the worst of the City bonus culture into a public body.”

It was left to the Unite union to defend the management decision, pointing out that those involved were not fat cats but the workers whose renewed efforts under tough conditions agreed by The Treasury had helped secure the Government loans pumped into the bank.

Mortgage service resumed

This week [Feb 22nd 2009] the news broke that the bank was to resume mortgage lending

Northern Rock is to revive its mortgage business with up to £14bn in new loans by 2011, the government has announced. The Newcastle-based bank is expected to take on about £5bn in new mortgages this year and up to £9bn from 2010. They will be financed with money from new deposits, repayments on existing loans and more government money.

Investment analyst Justin Urquhart Stewart, of Seven Investment Management, welcomed the move and said Northern Rock could provide inspiration to other banks.
He told the BBC:

“They’ve been quietly off-market, being able to reconstruct themselves… to come back again and be able to provide a model – possibly as the world’s most boring bank – for the other banks to try and imitate. “And [it will] provide more capacity into the system so money starts being lent again and that’s what the British economy needs desperately.”

The story prompted the natural negative reaction from Conservative spokesman Greg Hands, shadow treasury minister

“We’ve been calling on the government for some time to free up credit in the economy and to make sure credit flows. However, for Northern Rock it is a bit of a volte-face because until now Northern Rock had been under orders to wind up its mortgage operation and essentially to close down business. I think there will be a contrast between existing customers who are facing repossession with all these thousands of new customers who are getting very generous terms.”

Invisible leadership

Notice that famous ‘absence’ in the emerging stories? Where’s the leadership coming from? Don’t we have here a puzzle like the mysterious case of the dog that didn’t bark in the night?

Perhaps there is a leadership story, but one in which ‘safe pairs of hands’ deliver a strategy under very difficult circumstances.

The unfolding story of Northern Rock

You can follow the unfolding story at Northern Rock in our earlier posts. From most recent to earliest:
Northern Rock: What’s good about it?
Alistair Darling plays chess at Northern Rock
Telling it like it is
Stone age economics


Northern Rock: What’s Good About It?

February 18, 2008

winners-and-losers.jpg

The Government announces its intention to take Northern Rock into temporary care. The story has been told as an outcome of poor leadership. Is it really a tale of all-round incompetence? Or has the crisis blocked out any thought of positive thinking about leadership or positive outcomes?

On Sunday February 17th 2008, Alistair Darling announced that Northern Rock was to be taken into public ownership. In many quarters, the decision is deplored as evidence of poor leadership.

The ubiquity of incompetence

As head of the Treasury, AD is taking much of the leadership pain. His political opponents have been quick to continue their attacks on the competence of The Chancellor and of The Prime Minister.

Gordon Brown stands accused of an old weakness, of appearing to be leaving someone else to shoulder the blame, when problems crop up.

Mervyn King, as Governor of the Bank of England has also been widely criticised for his performance. Although he came under serious fire, he has survived press and parliamentary scrutiny and retained his job.

Northern Rock executives CEO Adam Applegarth and Chairman Matt Ridley were also found wanting. Their fates was sealed as the enormity of the problems at Northern Rock became clear. Initial offers to stay on to stabilize things were no more than could be hoped for. Exit Applegarth and Ridley, seriously damaged.

Interim CEO Andy Kuipers who replaced Applegarth is seen very much as a stopgap. He seems to have done all that could be expected, and came up with a rescue plan that won support from institutional shareholders. Yet I have seen no positive commentaries on his leadership.

The Financial Services Authority (FSA) have also been found wanting and criticized for “systematic failure of duty“. Its relationships with The Treasury and Bank of England are now being re-examined.

Leadership reflections

Are these various individuals really such incompetents as they are being portrayed? I offered a different view in an earlier post, which suggested that Alistair Darling, for one, could be seen as having a coherent strategy which he was playing pretty well. He signalled that nationalization was an undesired option, but one that he would not hesitate to use. Furthermore, the position was made to appear more convincing with a timely placing of information about the fall-back plan and the appointment of a very able leader (Ron Sandler) to run any new nationalized outfit.

Unlike many political commentators I argued that Darling has been playing a very solid game under tough circumstances. Among the complications are concerns to avoid breaking EU regulations about State Aid.

The merits of creative thinking

Serious problems can produce a deepening sense of doom and gloom. The difficult becomes assumed to be the impossible. At such times creative thinking is called for.

Creative leaders have their own ways of encouraging the faint-hearted. There are general purpose techniques advocated that help discussions break out of the bleak mindset that is captured by the ‘automatic no men’ and their killer phrases.

Edward de Bono suggests the benefits of putting on a positive thinking hat, and exploring unexpected options, before subjecting ideas to critical evaluation.

There are emerging psychological theories which suggest why personal development can be enhanced through such a positive approach.

When a group has become bogged down, and is unable to find any constructive answer to its problems, I recommend it starts with an attempt to put on a positive face (or De Bono’s sunny yellow thinking hat) and address the question ‘what’s good about it’.

As team leader, or someone brought in to support its creative thinking, I would not imply that I had an immediate answer, and invite a response for others.

Here’s how it might work, from the starting position that Northern Rock is a basket-case, whose troubles have been brought on by ineptitude of leaders in a tough global financial market-place.

What’s good about it?

The company has escaped the worse-case scenario of going bust, and triggering off a wider national (and perhaps international) reaction, in which the mortgages, savings, and jobs of many thousands of people would have been destroyed.

A first class leader has been put in place for the interim nationalised institution. He is likely to be granted more powers from the Government who will try to avoid accusations of interference in its management.

The action offers the best chance that funds sunk into the rescue (some £50 billion) will be recovered. (These are increasingly referred to as tax-payers money, but that’s another story).

Even the shareholders will get more than they would have if the shares were evaluated at their technical value (something close to nothing).

We could apply a similar approach to re-evaluate the leadership performance of those classed as dummies. I leave that exercise for another time.