Salz Review - Wall Street Journal

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163 Salz Review An Independent Review of Barclays’ Business Practices 13. Conclusion This independent Review was commissioned over eight months ago. Our terms of reference were specific yet broad. Our role has been essentially to review Barclays’ business practices and to make forward looking recommendations to assist Barclays as it seeks to rebuild trust and reputation. As contemplated in the Terms of Reference, we have considered past events, primarily to understand the gaps between Barclays’ behaviours and the standards it expected. From these, we have developed the recommendations – focused on improving Barclays’ business practices. The Terms of Reference did not ask us to determine the truth or otherwise of allegations surrounding the events, or to pass judgment on the shape of the business or the strategic decisions which were taken. Inevitably readers of this Review will be tempted to focus on the evidence of past failings. However, it is also important to put these in context. This is the story of a proud British bank that has achieved much. Despite its turbulent recent history, it is today a globally competitive and diverse business that has emerged from the crisis, somewhat against the odds, as one of the world’s pre-eminent universal banks. But this has been achieved at a cost. Barclays responded to the changes in the City of London in the 1980s by taking on the international banks. Early in this century, after a few false starts, it began successfully to grow its investment bank. Aiming to be one of the global leaders, it pushed for growth, taking advantage of seemingly endless liquidity and rising asset prices. And the applicable Basel capital rules permitted it to add assets with significant leverage. Investors came to expect short term success and rising returns on equity. For UK customers, the banks’ focus on growth was accompanied by cost efficiencies, experienced through branch closures, a proliferation of call centres, centralisation of credit decisions and the expansion of online banking. There was a gradual depersonalisation of the customer experience. The investment bank’s success was based on recruiting clever, competitive people. Its ‘edginess’ attracted them, as did the promise of high pay, the opportunity to be part of building something and the deeply entrenched commitment to winning. Short-term success fed into the pay, bonuses and LTIPs of the senior executives and those who made the money, especially in the investment bank. At a time of growth for almost everyone, the cracks were not noticed by Barclays, by the other banks or, to a significant extent, by the regulators. Without being aware of it, Barclays allowed a drift in its cultures. When the financial crisis broke, all this changed. The disproportionate sharing of risk between employees and shareholders became apparent. Barclays continued to serve many customers and clients well. But serious shortcomings had developed: the absence of a common purpose or set of values; cultural inconsistencies across the
Salz Review An Independent Review of Barclays’ Business Practices 164 Group; insufficiently strong controls; and a performance system that reflected financial performance at the expense of other behaviours and failed to focus sufficiently on the development of its people. These shortcomings led to significant conduct problems involving breaches of regulation, investigations and litigation, with reputational damage and the loss of public trust. These problems were not confined to any one part of the bank. And Barclays was by no means alone. The public tend to see this as an industry problem. But Barclays must not take comfort from this. Barclays survived the financial crisis as an independent institution, but it was close. The fight to survive seems to have accentuated the clever and competitive characteristics into something rather closer to aggressive and defensive. But it did survive, helped by having learned from lessons of past crises and essentially better risk judgments than some of its competitors. Today is a new world for bankers and banks and they are coming to realise it. The exceptional pre-crisis years for bank growth and profitability led some bankers to feel an entitlement to a share of success. Today the economic climate is very different. Barclays needs to take the opportunity to re-establish a clear purpose, common values and a more open and customer-focused culture. It needs to reassess the effectiveness of its governance arrangements, control and risk frameworks and how it incentivises its people. Its leaders need to focus on earning the loyalty of its customers, clients and employees and the trust of its regulators. And the Board needs to re-calibrate the importance of its role in society and the value it offers shareholders. The task is clearly far from straightforward. The Barclays of today is committed to change and has set out a five-year programme. Its current leaders have started the process of embedding awareness of what a large, evolving, global bank needs – and does not need – if it is to sustain itself over the long term. It was a lack of self-awareness that contributed to the deeply disappointing chapter in Barclays long and proud story. If short-term financial returns and employee rewards are ever too dominant in the bank’s culture, problems will result. We believe the recommendations in this Review provide a framework for Barclays to address the failings we have identified and a roadmap to help it restore trust and its reputation. It will require perseverance and consistency at all levels of leadership. And it will take time. Recommendation 34: Implementation Barclays should publish the steps it intends to take to implement the recommendations in this Review and publicly report progress on implementation at regular intervals, with such internal and external assurance as the Board considers appropriate.
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Salz Review - April 2013
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Salz Review - Wall Street Journal

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