REBUILDING LEADERSHIP
November 17, 2009
MONDAY 16 NOVEMBER, 2009
After the weightiness of those contributions, I fear my own may appear a little tentative. It probably goes without saying that leadership in the financial services industry is at some kind of crossroads. But when you stand at a crossroads, you have to deal with uncertainty, because you have more than one way you could go. And in my comments this evening I want to try and reflect that simple fact, by offering one or two thoughts on what leadership in our industry should look like in future, rather than hard and fast prescriptions.
SFE
It might be helpful if I begin by saying a little about our organisation and my own background.
Scottish Financial Enterprise is the representative body for Scotland's financial services industry. We were set up in 1987, when some far sighted people realised how Big Bang - the great liberalisation of the City of London's financial and trading markets - would transform UK financial services and that the Scottish industry needed a body to promote its interests in this new environment.
We are a membership body and we are funded entirely by our members. Our membership is very diverse, consisting of about 90 companies, some of whom - like Lloyds Banking Group - are clearly in the business of providing financial services while others have a strong interest in other ways in the success of the industry overall . So we have lawyers, IT firms, accountants, and others, as well as insurers, bankers and managers of money.
As for me, I joined the industry only two years ago after spending 20 years working in government. Indeed, my arrival coincided almost exactly with the first rumblings of what became all too quickly the global financial crisis.
At the time, I thought I was moving to an entirely different working world to the one I had known hitherto. In fact, it was only a matter of weeks before the pressures facing the industry in terms of reputation, public opinion and political controversy started to look very familiar, to someone used to working for governments and politicians. And in my contribution tonight, I want to mention some of those similarities and what they tell us about rebuilding leadership in our industry.
I want to look at three aspects of leadership and perhaps I should say at the outset that this reflects my personal views, not the views of any of our members. I like to think my comments would not invite disagreement from our members but I speak as someone who has the task of representing and promoting the industry, not as a practitioner. So it is part of my job to try and see our industry as others see us.
And if the financial crisis has told us anything, it is that what happens in our industry affects everyone. The negative side of that has hit all of us in the last couple of years and will continue to do so for some time to come. But there is also a positive side - the growth in global trade and capital flows has produced benefits around the world, in countries outside Europe and the US perhaps above all others. That has been made possible by financial services.
So what our industry does matters to everyone; and that is why our approach to rebuilding needs to recognise that and the value of seeing ourselves as others see us.
But what are the three things I want to cover?
First, the importance of communication in rebuilding leadership.
Second, to echo Susan's point about being outward looking.
And, third, to question whether there has been a vacuum in one particular aspect of leadership and what we might do to fill it.
Communications
There is no shortage of glib observations about communication and no shortage of consultants and advisers on the subject. So let me say what I am not talking about.
I am not talking about media handling, press releases, marketing, constructing a narrative arc or advertising. All of these terms of art for the professional communicator have their place but I am talking about something more prosaic - promoting understanding.
I said a moment ago that the financial crisis has taught us - reminded us, really - of how central our industry is to everyone's economic wellbeing, all around the world. With that privileged position, in my opinion, comes a responsibility to explain.
Others, from disciplines such as anthropology and linguistics, have observed how language is used as a tool to protect and promote a group's position. Latin arguably carried out this function for the Church, in earlier centuries in Christian Europe. Only the clergy knew Latin, so they held sway over those who didn't and protected themselves, so the argument goes, from unwelcome questions. They also, without doubt, preserved to themselves an understanding of doctrines and ideas that nonetheless had a real impact on the lives of ordinary people, since Church law dominated civic life in a way it does not today.
I see a parallel with financial services in the last 20 years or so. We have developed a new vocabulary that excludes all but the initiated. I don't only mean at the rarefied level. It is easy to mock terms like collateralised debt obligations, credit default swaps and dark pools. These are opaque to the general reader or listener. That is not a good thing, but it is sometimes a necessary feature of technical or complex business. However, it is troubling to learn that some of these terms have not been understood even by those deploying the instruments they refer to. The language had become too complex, so understanding was diminished. The act of communication had been subverted.
But our language diminishes understanding in our products on the part of the customer, too. Why do we speak about ‘equity' when we mean ‘shares', or ‘shareholdings'? Why do we speak of ‘mortgages', when we mean loans to buy houses? Why do we speak of ‘sub prime' lending, when we really mean ‘risky'?
So I think we need to reform our approach to language and communication if we are to rebuild our leadership successfully. That is not easy. But I think we should apply the same discipline to communication as we apply to finance. No company director would make a decision without checking out the financials. Language and understanding should be given the same priority. And this is a fixed task for leadership, not a one off audit. It demands intellectual discipline, day in day out, to keep asking ‘what does this mean' and ‘can others understand it'.
But if we don't build our leadership on this sort of approach, we will achieve far less, in my opinion.
Breadth of outlook
Turning to my second point, Susan rightly commented that we need to be outward looking and I strongly agree with her.
Some commentators have foreseen an end to globalisation and a retrenchment of commerce back within national boundaries. I disagree with that. I think internationalisation will continue and that Scotland's competitiveness will depend on how well our leadership, at all levels, responds to that challenge.
But perhaps another way of looking at this is to question whether we can rebuild leadership without extending the breadth of our outlook.
Some of the things that went so wrong in our industry were exacerbated, if not caused, by a narrowness of focus on the part of those involved. The best known example is probably the packaging and selling of securities - that is, the trading of financial instruments that bring together a bundle of streams of income of various kinds to create an aggregated value - where those in the business did not understand what colossal risks the overall financial system were being created. It was as if a lot of decisions were being taken that seemed very sensible and profitable judged by their own lights; it was just that those lights did not illuminate the full picture.
So while much has been made of the need for bankers to have more qualifications, that needs to be tempered, I feel, by a recognition of the need for breadth in our outlook. The Chartered Institute of Bankers here in Scotland has spoken for many years about the value of ethics in business - they emphasise the importance of bringing values to the professional life that stem from a wider world view than that determined by a particular market or company.
I think that insight - that what we do has implications beyond our immediate environment - needs to underpin our leadership efforts.
Again, that is not an easy thing to do. We cannot expect our industry leaders to be philosopher queens or Renaissance princes, able to slip effortlessly from discussions about balance sheets or investment trends to some casual analysis of, say, particle physics or Mediaeval poetry. But the demand for a wider understanding of how we affect the economy and society will, I believe, be a legacy of this crisis and leadership will need to reflect that.
Thinking as an industry
Turning to my third and final point, I found it very striking, when Lehman Brothers folded and the crisis was at its peak, that all eyes turned to politicians and regulators for guidance and answers.
Hank Paulson, then US Treasury Secretary, was perhaps the focus for much of this attention. Here in the UK, the pronouncements of our Chancellor, Alistair Darling, were keenly followed, with those of Hector Sants at the FSA. Other voices I remember were Jose Manuel Barroso, Barack Obama, Gordon Brown and, of course - Robert Peston.
But what I felt was missing - and I say this will all humility as a representative for the industry in public and media debate from time to time - was any evident expectation that our industry would provide answers. Should one have expected, say, that the Chairmen of Goldman Sachs, Barclays, HSBC, J P Morgan, UBS and Bank of America would produce their own 5 point plan to deal with the crisis?
In a very short space of time, it seemed that our industry - particularly the banking part of it - went from being a decider of things on behalf of the economy to being a subject of decisions taken by others - by governments, by regulators and by markets.
In the last year or so, we have seen the ideas for how financial services should be regulated, for what our industry's proper role in the economy should be, coming from governments and regulators. Lord Turner has made some of the most radical suggestions - though I don't share his doubts about the social utility of what we do and see yesterday's Sunday's Telegraph for an excellent explanation of that from John Varley of Barclays.
I think it is a measure of how difficult these issues are that there is still no consensus on some of the outstanding policy issues of the day - eg should banks be allowed to be ‘too big to fail'? Should some new form of taxation be applied to financial transactions? On all sides of these arguments, heavyweight figures are lined up, offering different points of view. So there is a lot to play for.
And as we examine how we rebuild our leadership, I think there is an open question about whether we should invest in some greater capacity for collective thinking and for the leadership of thinking. I don't know how to do it - but a changed relationship with academic contributors might be a good start.
My point is that we are currently leaving it to others and I wonder whether that will continue if our aspirations for rebuilding leadership are realised.
Conclusion
Ladies and gentlemen I hope these thoughts are helpful. As I have said, for this audience I thought some personal views would perhaps stimulate some discussion more than any attempt to distil the diverse perspectives of our members, which might in any event have been rather bland.
I conclude by saying that while we are, again, focusing quite a lot on the banks - rightly, since they sit at the centre of our economic system - financial services is a diverse industry. In Scotland we have great strengths in fund management - that is, making investment decisions on behalf of your customers - in asset servicing - that is, the execution and management of financial transactions, a global, 24 hour business and a rather unsung success story for Scotland -and in insurance life and pensions, as Susan mentioned.
All of these businesses are being led by people of the highest calibre and they are succeeding in very tough conditions. But as we emerge slowly from the financial crisis, it is clearly right that we look again at what we think leadership should consist of and I hope these remarks today assist in that.
Thank you.
