Steven Hester: A good leader in a bad place at RBS

June 15, 2013

This week Stephen Hester was removed from his post as CEO of the Royal bank of Scotland. The decision seems more politically than financially inspired

LWD has followed the RBS story since Steven Hester’s arrival in 2010. Steven Hester: Villain, hero, or just an outstanding business leader?. The post is summarized below:

Royal Bank of Scotland took its turn this week as another giant banking institution paying ridiculous bonuses while still in hock to the Government’s bail-out scheme. Its leader Steven Hester is reviled as another fat-cat financial leader insensitive to public opinion. Contrition is a rather hard emotion for a leader to fake. So when one of them appears to be making a good fist of apologizing without appearing a pathetic wimp and maybe a bit of a damp rag as a leader, it’s worth taking a more careful look. The broadcast [March 2010] showed the BBC’s Hugh Pym asked RBS’s CEO Stephen Hester, why were there still such big losses for RBS. In three minutes, Henson left me with the impression of someone capable of a mix of toughness and sensitivity as a leader.

Later

Three years later it was well-known that he had taken a cut in earnings to take on one of the most challenging jobs in the Financial world and that the bank has made an impressive turnaround under his leadership.

The politics of Hester’s dismissal

Chris Blackhurst, Writing in The Independent, offered an explanation for Hester’s departure.
that the Chancellor now needed a more compliant leader in the run up to privatization of RBS. He points out that under Hestor’s leadership the bank improved its balance sheet to the sum of a staggering trillion pounds sterling.

As a result of volunteering, he’d become a public figure, his private life dissected, his country house photographed from a helicopter. A snap of Hester in the garb of his pastime of fox-hunting was wheeled out to traduce him as “another fat cat banker on the make, except this was one who was now being paid by us, the taxpayer”.

Yet, he’d chosen to do it and was sticking with the task. So, why wasn’t I surprised at the announcement of his going? Because his face never fitted. Behind the scenes, Hester could be an awkward customer. Softly spoken and eloquent (for a banker), he was strong intellectually, fully prepared to speak his mind, not prepared to lie down easily in front of politicians and civil servants without banking experience and know-how.
Osborne made plain his wish to be seen to begin the process of privatization in 2014 – in other words, well in advance of the 2015 general election. Hester indicated he would stay until 2015 when the bank was expected to be restored to profitability – after that, though, he was unlikely to want to remain any longer.

Hester’s reluctance has been used to oust him. It’s a fig leaf, as is the notion that while he was good at cutting he’s not someone who knows how to grow a business and he’s not a natural front-of-house salesman of the sort who would persuade [the general public] to snap up the shares. Having steered Hester to and through the door, Osborne must now find a successor. It won’t be easy.

The stock market agreed. This week RBS shares tumbled.

The sloppy and amateurish manner in which Hester’s departure was handled cost UK taxpayers dear as the shares tumbled at the market open on Thursday [14th June 2013], down almost 8.5% at one point as investors made their feelings clear at the bizarre turn of events.

Dilemmas

The story makes interesting material for business students interested in dilemmas and interpreting the decisions made by leaders.


Sir Philip Hampton shows ethical leadership or perhaps cautious pragmatism

April 11, 2012

Future Manyumba

Royal Bank of Scotland Chairman Sir Philip Hampton [right] turned down a £1.4 million bonus in January. Was it evidence of a ‘wind of change’ or a self-saving political statement?

On the 28th of Jan this year, Sir Philip Hampton announced that he would give up his £1.4 million bonus as Chairman of Royal Bank of Scotlan. Few people may disagree with his actions, accepting that the RBS team is doing a tough job. Indeed some would question why he should take such a personal sacrifice when his colleagues in the private sector are still getting astronomical bonuses by comparison.

Frontline leadership

The decision was symbolic in nature. His actions could prove to be a watershed moment in the history of the finance sector in the UK. Sir Philip Hampton has previously held successful positions with Sainsbury plc (chairman), Lloyds Banking group plc, BT group, British Gas and British Steel.

As the head of a bank which is 83% owned by tax payers, public opinion is something that bears a strong influence on decision making. What does it say when bank executives pay themselves huge bonuses when in essence the shareholders (tax payers in the case of RBS) are having to bear with the pains of the Government’s austerity measures?

Decision Dilemma

Sir Philip Hampton demonstrated restraint by example, demonstrating the subtle and pervasive powers of symbolic leadership. He faced the dilemma of either taking the money or suffering personal loss and alienation from fellow executives in the banking industry. Accepting the money at a time when the bank is cutting jobs (cost cutting measures) would have made him look hypocritical but giving it up risked demoralising other executives (within RBS) who ultimately may feel pressured to emulate him. I believe that his choice sent out a compelling ethical view point for business and industry.

The force of sacrifice

Within days of this action, the RBS CEO, Stephen Hester decided to emulate his chairman (some may say he was left with no choice). Within a week, executives of Network Rail also decided to forego their bonuses . Through his ethical symbolic actions, Sir Philip Hampton may have started a chain reaction which is going to transform the banking and private businesses landscape. The momentum is building with politicians and business community now calling for a public debate about the morality of executives’ bonus scheme during tough times.

Challenging times – Adapt or Die

A leader does not necessarily have to ‘stay the course’ just because it is his/her natural style but has to have the flexibility to adapt to the changing times.

Hero or Villain?

It is difficult to see the actions of one man changing the bonus culture of banks in the short term. However, his actions have shown participative and visionary leadership likely to have momentous influence in the long term. He has chosen to make his actions congruent with his beliefs. Now he can stand up and talk about the need to cut bonuses of bankers with moral authority.

Acknowledgements

Future Manyumba, a LWD subscriber, is originally from Zimbabwe, and is a Process Engineer with training and experience in hard rock mining in Southern Africa (gold, nickel and copper). His interests include geopolitical global issues, leadership and football.

Image of Sir Philip Hampton is from the RBS website.


Amanda Staveley: “If not the architect a big piece of the architecture” of Abu Dhabi RBS deal

March 28, 2012

Amanda Staveley is a global networking superstar. Her latest role has been a broker of a proposed deal to sell-off part of the UK Government’s investment in The Royal Bank of Scotland to Abu Dhabi

LWD has followed the high-flying career of Amanda Staveley for some time. Our post [Sept 2008] on her networking activities has been one of the most visited, although its author suspects that its popularity may owe more to its image of Ms Staveley than to its textual information:

Her network of significant contacts in The Middle East had involved her earlier in the year in the negotiations by Dubai International Capital for purchase of shares that would lead to a takeover at Liverpool Football Club. In this she had been working on behalf of Sheikh Maktoum. This deal was to fall though, but shortly afterwards, she was hired by Thaksin Shinawatra, the beleaguered Chairman of Manchester City Football Club, who was looking for a buyer for the club. Early reports gave prominence to the charismatic figure of Dr Sulaiman Al-Fahim and his audacious public claims for turning Manchester City into the biggest and richest football club in the world.

The RBS share sale

This week, [March 27th 2012] a news story broke internationally concerning the speculation about the sell-off of shares held by the UK government in The Royal Bank of Scotland. The Wall Street Journal described it as follows:

Amanda Staveley, a British banker renowned for deal-making with Arab Gulf power players, is advising Abu Dhabi on its potential purchase of a stake in the U.K. government-owned Royal Bank of Scotland Group PLC (RBS), according to [an unnamed source].

Staveley already helped broker a deal that saw Abu Dhabi’s Sheikh Mansour bin Zayed al Nahyan, a member of Abu Dhabi’s royal family, participate in a £7 billion fundraising for the U.K. bank Barclays in 2008. Given her past success, Staveley is likely to be an important figure in the RBS deal. [The unnamed source said] “If she’s not the architect, she’ll be a big piece of the architecture.”

The negotiations between Abu Dhabi and the U.K. Treasury and U.K. Financial Investments PLC, or UKFI, which was created to hold the government’s stake in RBS, were unlikely to produce a deal for some time. “Talks have been going on for many months, but if something were to happen it would take several [more] months.”
It remains unclear which entity or entities in Abu Dhabi might hold a stake in RBS should the deal go through, the said. What percentage of the bank Abu Dhabi would buy or how much money it would spend were also open-ended, and the “discussions are likely around what needs to be invested in the business.”

Acknowledgement

The image above of Amanda Staveley was obtained from The Sebamban Website


Steven Hester: Villain, hero, or just an outstanding business leader?

March 19, 2010


Royal Bank of Scotland took its turn this week as another giant banking institution paying ridiculous bonuses while still in hock to the Government’s bale-out scheme. Its leader Steven Hester is reviled as another fat-cat financial leader insensitive to public opinion

Contrition is a rather hard emotion for a leader to fake. Akio Toyoda struggled recently to convey his regrets, as he attempted to apologise for the faults in the operations of the mighty Toyota corporation. By and large, leaders of the financial institutions have also struggled when called to account in that Harmanesque court of public opinion. So when one of them appears to be making a good fist of apologising without appearing a pathetic wimp and maybe a bit of a damp rag as a leader, it’s worth taking a more careful look.

The BBC’s Hugh Pym asked RBS’s CEO Stephen Hester, why were there still such big losses for RBS. The (3 minute) video interview is worth looking at. If you are interested, I’d advise you to take a look, and judge for yourself. Make your own mind up. I’d like to know what conclusions you reach, after you have watched the brief video … Comments would be welcomed.

Of course, it would be wrong to jump to conclusions on the basis of a three minute interview. On the other hand, it should be enough to compare and contrast the impression being made with that of the majority of apologists on behalf of an organization (or even of a political party).


Goodbye Airmiles, and you can keep your Lloyds TSB Credit card as well

June 22, 2009
John Daniels (Lloyds)

John Daniels (Lloyds)

Those nice people at Lloyds TSB explained how I could keep my 9000 airmiles by signing up for their Credit Card. After a little thought I decided to bin the offer of their credit card, and write off those airmiles

Another great marketing wheeze brought you by the nation’s favourite industry. Yes, the near extinct banking sector breathes afresh and its members are coming up with even more creative ideas to attract customers to their credit card schemes.

Last week [June 2009] a fancy set of marketing forms plopped through my letterbox. They announced that I could save my airmiles by some rather complicated arrangement which involved me in signing up for a Lloyds TSB credit card.

I rather liked the prospect of using those airmiles, collected over quite a few years of yomping to various parts of the globe. Later I had some peripheral contact with the Airmiles organization through its links to the world’s favourite airline. At that time it seemed an enthusiastic and entrepreneurial set-up open to creative ideas.

But I don’t want a credit card. Even if I did, I would have objected to what amounts to a grudge buy. It must have sounded a winning idea on the corporate deep-diving marketing away-day.

Meanwhile, in an other part of the forest …

Meanwhile, in aother part of the forest, news breaks of the remuneration package agreed for Stephen Hester, the leader appointed to RBS to sort out the mess there. It’s all a bit complicated. Their loan is generally described as coming from money handed over to the Government by taxpayers like me. I still haven’t worked out the various ramifications of the deal cut with the bank to motivate its new chief executive Stephen Hester.

The package is made up of £1.2m in pay, up to £2m in non-cash bonuses and up to £6.4m in long-term incentives. The long-term incentives will only be payable if share price targets are hit over the next three years

The admirable Robert Peston best sums up the matter of Hester’s remuneration package

Now let’s stray into the land of the bloomin’ obvious, to look at why Mr Hester’s package will be controversial.

First and most obviously, Royal Bank is cutting thousands and thousands of jobs, perhaps up to 30,000 in the coming two years or so.

Second, Royal Bank is 70% owned by taxpayers. And at a time when the public sector is expected to be squeezed hard, it may look odd to be paying so much to the boss of a publicly controlled bank.

Third, all the banks are under pressure to increase their lending to businesses and households. For example the governor of the Bank of England agonised in public last week about how economic recovery might be put in jeopardy by the inadequacy of credit made available by banks.

Why is that relevant? Well, for the chief executive of a bank, the safest way to increase profits and the share price at this stage of the economic cycle – apart from slashing costs and cutting jobs – is borrow from retail depositors at close to 0% and then lend to the government by buying relatively risk free long-term gilts paying 4%.

The Treasury is aware of this risk. Which is why it has forced Royal Bank to agree quantitative targets for the amount of credit it will make available to businesses and households. But there is a piquant question whether Mr Hester’s remuneration incentives will deter the bank from providing more than this minimum.

All that said, one paradoxical reason for paying that kind of money to Mr Hester is also – funnily enough – that taxpayers own the majority of the shares.

He is widely regarded as that rarest of animals, an untarnished world class banker. And we surely can’t complain if a competent individual is running a state institution Also, if Mr Hester were to make the full £9.6m, Royal Bank’s share price would need to have risen to more than 70p over a sustained period – which would yield a profit for taxpayers on our 70% stake of £8bn.

Which looks a reasonable deal for the state – unless you think, as many do, that because bankers were to a large extent to blame for the economic mess we’re in, it’s too early for any of them to be earning this kind of money

Mea Culpa

In an early version of this rant, I foolishly mixed up the Lloyds TSB air miles for credit card story with the RBS Bumper payday for Stephen Hester story. The first effort read more smoothly than the second version, but suffered from the slight problem of being utterly confused.


Leaders in the news: Winners and losers

October 13, 2008

Howard Schultz Starbucks

Howard Schultz Starbucks


In times of crisis, some leaders step forward, others are deemed to have failed. There have been examples of each, as the global financial crisis enters a new critical stage

Fred the Shred takes the fall

Pressure mounted on Sir Fred Goodwin to resign as chief executive of Royal Bank of Scotland (RBS) as the bank seeks to tap the Government’s £500 billion rescue fund. The Government is reluctant to a deal with RBS’s participation unless he relinquishes his role. Although he clung on tenaciously this has been a very bad week for Sir Fred. Another former city hero exits ignominiously.

Sir Fred Goodwin 0

Gordon Brown is no dead cat

The deeper the crisis, the more polls seem to swing towards Prime Minister Gordon Brown. David Cameron and George Osborne grudgingly offer support the government. Are we seeing a ‘dead cat bounce’, or is there life in the political career of Gordon Brown? He appears more relaxed in the last two weeks than he has been since taking over from Tony Blair as Prime Minister.

Brown 1, Cameron 0, Osborne 0

Boris Forces Resignation of Sir Ian Blair in Leadership Battle

The resignation of Sir Ian Blair [October 2nd 2008] develops into a political story. The BBC traced his turbulent career. Boris Johnson, incoming Mayor of London, is proving a hands-on leader willing to act forcefully. Sir Ian, under pressure on operational and personal fronts, was called into a ‘meeting without coffee’ by the Mayor before tending his resignation.

Boris 1 Blair 0

Obama and McCain Round 2

The second televised debate between the two candidates [October 7th 2008, Nashville, Tennessee] is as stage-managed as the first.
A key negative moment was was reported widely as

Jabbing his finger and spitting out “that one” instead of naming Barack Obama, John McCain showed an angry side

Polls suggest that Barack Obama is moving ahead.

Obama 1 McCain 0

Dick Fuld faces the music

Dick Fuld, controversial CEO of Lehmans has had a very bad few weeks. When ‘invited’ to testify before a hostile congressional committee following the crash of his company, he demonstrates his robust leadership style, denying wrong-doing or ethical weakness. He ticks the boxes for the callous Wall Street fat cat. Fuld very much the loser here.

Dick Fuld 0

Darling’s drastic rescue bid of the banks and maybe Gordon Brown

As The Times sees it
Chancellor Alistair Darling [October 8th 2008] launched a drastic rescue of Britain’s high street banks [to avoid] a cataclysmic failure of confidence by announcing a part-nationalisation plan with £50 billion of taxpayers’ money. Alistair Darling, like Gordon Brown has had a better week.

Alistair Darling 1

Starbucks, Schultz and the running taps

Howard Schultz, returned to the chief executive role at Starbucks earlier this year, faced with serious loss of froth in the business. Poor figures and closures continue. This week [October 8th 2008] the ‘running taps’ story threatens to sully the firm’s good environmental reputation.

Starbucks 0, Howard Schultz 0

And in the long run?

Not all these cats are dead. And, as we know, cats have seven lives.


At RBS, Fred the Shred is not yet dead [update]

August 11, 2008

[Update, Feb 27th 2009. The post below was written before Sir Fred became the target of national hostility towards the ‘buy-out’ conditions for quitting his job, and being listed as one of the ‘ten people who caused the credit crisis’]

Sir Fred Goodwin survives the announcement of RBS’s financial losses, giving a bravura performance to the media. To understand his survival prospects we have to look at his track record

Sometimes they go. Sometimes they stay. Leadership survival under pressure remains a fascinating game of guesswork and analysis. At least in part a beleaguered leader has to avoid appearing to be defeated by circumstances. That was the evidence in the very public performance of Sir Fred Goodwin this week [August 8th 2009].

According to Terry Murden in Scotland on Sunday

Announcing the second biggest loss in banking history would mean the sack for most executives ..but RBS’s Sir Fred Goodwin may have pulled off…The multi-national press corps that trooped into the towering London head office of the Royal Bank of Scotland provided a clear reflection of how the company had been transformed from its days as a provincial bit-player in the financial services industry

In defiance of those who have called for his head, and/or that of his chief executive, McKillop showed no sign of standing aside. He said he would be announcing “in a few weeks” some new appointments to the board that were promised at the time of the year-end results announcement. There has been speculation that one of those would be a senior non-executive who would succeed [chairman] McKillop or at least be groomed to replace him.

Goodwin also gave no indication that he was ready to step down. Last week marked his 10th year at the bank, eight as chief executive, which is a relatively long time by modern standards. Questions have been raised about the succession strategy and why, for instance, the bank has no chief operating officer or deputy chief executive. A clearly indignant McKillop refuted suggestions that succession was not on the bank’s agenda. “The board gives a lot of attention to succession. There is a plan being developed and for 18 months we have been working on it,” he said.

With the shares responding positively to the announcement, it was clear that RBS and the board had escaped what was in danger of being banking’s Armageddon. The bank will make a profit for the full year and has already more than replaced the £5.9bn it has lost in toxic credit market writedowns which will not be repeated in the second half of the year.

Sir Fred’s achievements at RBS

Murden gives a brief history of Sir Fred’s achievements. Much followed a glowing biography in Businessweek in 2004. His reputation as a dynamic financial leader. His entrepreneurial flair which has even been coupled to a charge of megalomania, and a public commitment at one stage to avoid the risks of Empire building. His Fred the shred label was explained in the Business week profile of 2004

Goodwin, known in the City as “Fred the Shred” for his vigorous cost-cutting, joined RBS in 1998, as deputy chief executive to Sir George Mathewson, the current chairman. Prior to that, the native of Paisley, Scotland, was CEO at two British banks, Clydesdale Bank PLC and Yorkshire Bank PLC. Before working at the banks, he was a partner at accountants Touche Ross & Co.

At RBS his great early coup was the hostile acquisition of Nat West, agilely executed in 2002.

Forbes Global (April 15, 2002) noted that the acquisition was “brilliantly strategized” by Goodwin, who trumped his competition (Bank of Scotland) with a carefully constructed integration plan that impressed investors and produced great results, including a 27 percent increase in RBS’s profits. Unfortunately, Goodwin had to cut 18,000 jobs and $1.4 billion in costs in the merger, but his dedication to his investors won the day.

Early successes were followed by the controversial role in the acquisition of ABN in 2007. The move was criticized from the start, and remains enough of a burden to be used as a strategy to dislodge a leader by determined shareholder action.

He was Forbes Businessman for 2002 [“an original thinker with a fast-forward frame of mind who had transformed RBS from a nonentity into a global name”], European Banker of the Year in 2003, Knighted in the Queen’s Birthday Honours list in 2004 although the acquisition of Charter One Financial for $10.5bn is criticised as a costly move for growth. This and a 2005 acquisition of a stake in Bank of China was the period where Goodwin is accused of megalomania and he promises not to indulge in any further big acquisitions.

2007 sees the acquisition of ABN Amro with partners Santander and Fortis, the biggest banking takeover in history. 2008 and the credit crisis just about rescued his reputation when the record £12bn rights issue is taken up, prior to this months’ announcement of record half-year losses of £692m.

A Charismatic leader?

Charisma? For some reason the admiring biographic sketches have not made much of that term. Yet his intuitive and buccaneering style with a self-proclaimed reliance on intuition would appear to make him a prime candidate for the epithet. In this, he is also a candidate for illustrating the recently popularised merits of trusting first instincts in decision-making

Ironically, the first article I found mentioning charisma and Sir Freddie was an account of the Spanish executive Ignacio Galan, and contrasting his charisma with (implicitly) that of the RBS leader:

Watching Ignacio Sánchez Galán in full flight, is a sight to behold. The charismatic chairman and chief executive of Iberdrola has a style which just could not be British. Fluid in his delivery, the 57-year-old comfortably boasts during press conferences about turning Iberdrola – a substantial Spanish utility when he joined in 2001 – into the world’s fourth-largest utility, after buying ScottishPower

A less inspired Madrid-based journalist for a leading British newspaper dismisses the head of Iberdrola as “arrogant” but admits his political skills. “He’s seen as a bit of a hero. He plays the role of a buccaneer and a freedom fighter, which isn’t really the case, but he is seen very much as politically neutral, which is unusual here and they love it.”

Early in the Nat West campaign, another commentator had noted that

“in terms of arrogance and single-mindedness, Fred is George [Mathewson , his chairman] with knobs on”. And a fund manager added: “Neither of them is known for their charisma.”

Perhaps a more charismatic leader builds a brand, concealing such human weaknesses as arrogance and ruthlessness. According to Jeff Schubert, who has studied board room tyrants, Napoleon worked diligently to convey his indispensability. Schubert summarises Napoleon’s remarks on his return from the ill-fated Moscow
In meeting with some senior officials, Napoleon’s first words were:

“Well, well, gentlemen, Fortune dazzled me. I let myself be carried away, instead of following the plan I had made and that I spoke of to you. … I had thought to gain in a year what only two campaigns could achieve. I have made a great blunder; but I shall have the means to retrieve it.”

Napoleon later commented to Caulaincourt: “The terrible
bulletin has had its effect, but I see that my presence is giving more pleasure than our disasters give pain.”

We will see whether Sir Fred’s presence as leader continues to give more pleasure than the financials give pain … Several commentators including Gwen Robinson were less sanguine.