"WHAT A DIFFERENCE A YEAR MAKES" - JOHN CAMPBELL'S SPEECH AT THE INNOVATORS
November 14, 2008
13th November 2008, The Thistle Hotel, Glasgow.
"Secretary of State, Cabinet Secretary, SFE members and guests - welcome to the Scottish Financial Enterprise 2008 annual dinner and Innovators awards ceremony.
Credit crunch
What a difference a year makes.
When we gathered in jubilant mood at this event in November 2007, the difficulties and challenges that the last twelve months have brought would not have been believable.
At that point, the information we had suggested that the financial services industry in Scotland was in good shape and looked stable enough for the future. We also took comfort from the fact that our industry was the fastest growing sector of our economy here in Scotland.
We had seen a 60% growth in output since the year 2000 which was, and still remains, a real success story.
Hindsight is of course a wonderful thing, and none of us knew the extent of the difficulties that would follow. But it is odd, now, to wonder whether somehow we imagined, or hoped, that Scotland could avoid the impact of a worldwide financial downturn.
But here we are.. The very success of our industry brought us high in international league tables as a global financial centre and there are enough statistics out there to confirm that. But as a serious player internationally, it was inevitable that we would also take some of the blows. I want to say a few words about the events of the last 12 months, and how the international crisis has affected our industry in Scotland.
Tracing developments
Back in 2007, the demise of Northern Rock brought some very vivid television images of the crisis into people's homes. Those images turned what was, up until then, perhaps a remote, technical issue - largely confined to the financial media - into something very real and very close to home for large numbers of our fellow citizens.
As we progressed through 2008 there was an increasing sense of unease in the industry. It became clear that the difficulties would not be overcome quickly. Some of our major companies - like their counterparts around the world - sought to take action quickly to do something about it.
In the spring we saw the Royal Bank of Scotland and HBOS initiate rights issues, turning to shareholders to provide additional support for their balance sheets. At the time it seemed like a severe but necessary step to take to address liquidity issues.
In the months that followed the crisis in the US deepened, with a few of the highlights - if that is what we could ruefully call them - being the US government stepping in to rescue Freddie Mac and Fannie Mae; the demise of Lehmans; the bail out of AIG and then a number of fiscal provisions by the US government and Federal Reserve to avert complete systemic collapse.
What in ordinary times would have been seen as momentous events, such as the selling of Merrill Lynch, the change in status of legendary banks like Morgan Stanley and Goldman Sachs, became something like footnotes to the massive, unfolding story.
This all took place in our industry that relies heavily on confidence, and that has in recent years become truly global in nature. Confidence plummeted, borrowing became all but impossible and the impact was felt all around the world. That impact moved from something that started within the industry to something that is now being felt within the wider economy, and by the general public.
News broke of the precarious position HBOS was in and a deal was struck with Lloyds.
The Treasury confirmed a government support programme for UK banks, once again testing our capacity to assimilate change, as the pace and unpredictability of events maintained their momentum.
Learning lessons
I don't want though to give the impression that I believe that somehow this all just happened to us and our industry, with no responsibility on our part. We along with those who are charged with regulating our industry and those politicians who influence it, need to learn from recent events.
Some sections of our industry overreached themselves; their creativity outstripped their capacity, and that of their customers and their regulators, to understand the consequences of what they were doing. So we need to take a fresh look at accountability and how the sort of consequences we now have to live with, at a systemic level, are made real and meaningful at the point of decision. We don't want to understand them only when they jump up and bite us.
So we must work with regulators, with governments and across our industry to make improvements for the future.
In my view, the key challenge now is to understand the changed environment, to learn to adapt to it and to propose new approaches that ensure best practice in how we operate and how we service our customers.
The danger is that government and regulators now move into top gear to, ‘in their view', prevent such events ever happening again. This is a natural reaction after shock events but history tells us that such ‘shock tactics' seldom provide long term solutions. Our challenge is to determine how the interests of taxpayers and customers can be protected, without stifling the creativity in our industry that contributes so much to economic growth. As others have said, we need better oversight, not necessarily more regulation.
We also have to consider very carefully how the demands of government, with its wholly correct focus on accounting politically for public money, can sit comfortably with the governance and accountability that are so necessary to sound business practice in an open, market economy. We have to ensure that government and shareholder interests are aligned. If we don't, we in the UK are in danger of eroding our competitive position in the global market place.
We must ensure that our structures, products and practices remain highly competitive, and I am confident that all of the organisations represented here tonight are focused on ensuring that.
Better communication
We need to get better at providing information, and explaining our work, to a wider audience.
We have in the past done most of our thinking and communicating internally. Yes we understand well the importance of keeping shareholders informed, but to regain our reputation, and re-build confidence in our industry, we need to do more than that.
We must be more open to scrutiny, and give more attention to the world outside our companies and industry.
We must recognise that we have a responsibility to society. Our industry and our institutions are central to people's day-to-day lives and business and it is hugely disappointing that we have, in the last 18 months, seen runs on banks, the collapse of banks and the recapitalisation of the financial system at mind boggling levels. Those of us who run this industry must never forget the responsibilities that flow from being part of the very fabric of our communities.
More openness and engagement will allow us to prove we really understand these responsibilities and how the environment has changed. Openness and engagement will allow us to show that this country has the expertise, has the history, has the reputation and has the innovation that is required to adapt to a new, worldwide, way of operating.
Innovation
Tonight we must be considerate of our circumstance while innovating for the future.
The dictionary says that to innovate is ‘to introduce a new way of doing something or a new device'. That sounds quite straightforward, quite an obvious and practical thing to do.
But recent events have given the word ‘innovation' some negative connotations. I understand that, but that negativity relates to the past, to devices and practices that will be unravelled and will not be repeated in the future. ‘Innovation' cannot become a dirty word - it is central to our continued success.
The Innovators Awards, and the short-listed nominations - are a great example of the best definition of the word. They are, indeed, ‘new ways of doing things, and new devices'. But these innovations will bring, and in some cases already are bringing, genuine improvements for customers, staff and the wider community.
We have an exciting list of nominees, which says a lot about the quality of the people in our industry in Scotland, and their commitment. But you will have to wait until after dinner to find out more.
Conclusion and moving on
In conclusion then, we must be humble, we must recognise our responsibilities and deliver against them and we must grasp the changing world in which we live and build on Scotland's strengths. The reasons for our international standing as a centre for financial services excellence have not gone away. Our skills, our people, our creativity, our professionalism - all of these will adapt to the new environment and help us focus all out energy in support of our customers.
Yes, we learn the lessons of the past. But that does not mean losing sight of the opportunities for the future, nor faltering in our belief that we have the capacity, the skills and the leadership to seize them.
Thank you."
