I have just finished reading Philip Augar's excellent book "The Bank that Lived a Little: Barclays in the Age of the Very Free Market". I found myself completely gripped by it because, even though the outline of the events was familiar, his meticulous research and good writing made the story really come alive.
There is something fascinating about the rise of this literary genre which takes the lid off the world of finance, offering some insights into the thinking of the people involved in events that can blossom into full-blown scandals. I remember being very impressed by "Barbarians at the Gate" and "Liars' Poker" when they were published in 1989 and there has been a steady stream of such books since then, some turned into compelling films like "The Big Short" and "The Smartest Guys in the Room".
Augar's book seems to me to be a cut above the rest. The underpinning research is very impressive and he has made very good use of the extensive access he was afforded to people and papers. There is often a nuance to the books in this genre, as if the authors are saying not only "Here's the story and the facts I've discovered" but also inviting the reader to share their shock and concern about issues of accountability and the behaviour of the protagonists. Augar is very careful about positioning his analysis, which in my opinion makes this book as objective as good academic research aims to be. The reader can't help but conclude that there was a significant problem with Barclays' strategy and that the non-execs did a poor job of challenging those driving it but Augar manages to trace a path through his accumulation of factual information in such a way that the reader is led to this conclusion in small steps, rather than being presented with the full glare of the story viewed with hindsight.
The book clearly describes the dominance of a small elite group of middle-aged men over the banking industry. They are not driven by the size of their personal rewards: these serve to symbolise and reinforce their relative status. They are driven by competition. They know they are powerful but they seem to have little idea of how such power might be used to improve society. They view regulation as a constraint to be circumvented or even ignored. Although they have much in common, they are not friends and have little compunction about leaking damaging information, undermining each other in the boardroom or sacking each other. They consider themselves exclusive on the basis of their qualifications and experience: only they can fully understand the complexities of financial institutions and the challenges of the economic environment. They are not very likeable.
There are women in this story. If the diversity discourse has any real traction, you'd expect them to make a difference to board behaviour. They don't, although at least one - Alison Carnwath - tried.
The numbers are astonishing. They are juggled about with little concern for the impact on those at the bottom of the pile - the bank's retail customers. Alongside the boardroom story, Augar traces the experience of one such customer, whose business fails in large part due to the mis-selling of a complicated financial product, illustrating the way that the traditional aspects of retail banking have been undermined and also emphasising the distance and apparent disconnect between the board and the organisation's frontline activities.
Lombard Street to Canary Wharf: my tentative theory that moving out of the old buildings of the City where office walls are often hung with portraits of past directors has had a negative impact on behaviour was somewhat undermined - Barclays took the portraits with them - but there are points in the story where the surroundings become symbolically important.
And the dinners. Deals are made and candidates are assessed over dinners. There's a book to be written about the role of dinners in corporate governance.
The relationship of the Barclays executives with their counterparts in the US is interesting. The goal of rivalling the Wall Street institutions underpins the development of the investment side of the bank but the implications of this for the organisation as a whole are not considered carefully by the board until it is too late. The clash of cultures between the US and the UK is also fundamental to the story. While wanting to harness the drive and abilities of US bankers, the board members from the UK fail to recognise problems of different communication styles. Traditional informal nods and winks of the City don't work as the regulators expect them to. The international network within which the senior bankers are enmeshed challenges the idea that culture can be effectively changed within individual companies. This group has its own culture, permeating all the banks between which they moved so easily. It would be interesting to consider the role of this type of epistemic community on organisational culture: the current emphasis in corporate governance thinking on managing culture does not appear to take such external influences into account.
The Barclays board ticked all the corporate governance boxes but made bad decisions. This is an excellent example to challenge the misguided belief that code compliance can prevent boards from making mistakes, and demonstrates the need to distinguish carefully between defective governance structures and processes and poor business decisions. The non execs were not shrinking violets: they were people of stature and competence in the worlds they came from. Why were they unable to exercise effectively the oversight function expected of them? This story supports my strong suspicion that the NED role is often impossible to fulfil in the way that our current corporate governance framework assumes.
The story is not over yet. Charges of fraud around the raising of the funds from Qatar that kept Barclays independent of government funding during the financial crisis have yet to be resolved. Criminal proceedings against four former senior employees will not start until next year. Augar's commentary on the unfolding story will be well-informed: I look forward to it.
