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.


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.