What, I was wondering, would have happened if the recent debacle over banking had taken place against a different operating background?
Consider the causes (and outpourings) that have led us to the position where, in the UK at least, the Government owns one bank (Northern Rock), is heading for over 80% ownership of another (Royal Bank of Scotland) and now [7th March] has a 65% stake in the newly enlarged Lloyds Banking Group. Add to that the toxic debt guarantees and the impacts on the economy of reduced tax-take during a recession and it adds up to an enormous bill. Then there’s the individual pain felt by thousands who are victims of the downturn in one way or another.
Unavoidable? Well in the context of the operating models used by the banks that led up to the mountain of sub-prime lending and associated derivatives (that nobody can quite understand) then, Yes.
However what if those very same institutions had been operating within a Compleat Biz framework? Then, I believe, things would have been significantly different.
The biggest single factor at play here seems to be the attitude of Shareholders. Fred Goodwin (at RBS) played heavily on the relentless improvement in share price for his organisation. When the people in Corporate Finance were queried about why they favoured certain developments over others – the answer was an invariable “Because it will push the Share Price up.” Complete lunacy – especially when there was a notional Scorecard in place emphasising the need for tripartite balance to Shareholders, Staff and Customers. Other managers just accepted this as the power of the Corporate Finance Department and didn’t challenge it.
Yet the shareholders were (blissfully) unaware of how much their interests were being put in jeopardy. Moreover, if this had been a Compleat Biz in operation, then the Corporate Finance boys would have known very well that their attitude was unacceptable. Yet money talks – at least when there is nobody else to listen to. And as a result, there is less critical appraisal of what is actually going on.
Turning to the CB roles for Shareholders – somebody was required to bang the table. To make it abundantly clear that individual agendas within the bank(s) needed to be brought firmly into line with a broader vision for the organisation and its direction. This would have been a much better mirror for individuals and managers to hold up and reflect upon. Benchmarks for whether any individual piece of development was, in truth, really desirable or merely a case of the Emperor’s clothes to coin a metaphor.
Another facet of this is the way in which individuals within large corporate structures see their own role. The lack of any solid grounding in ‘WHY WE DO WHAT WE DO’ is overridden by ambition, internal politics, and misguided enthusiasm. It never ceases to amaze me how shallow the understanding of middle managers is around the basics. People seem to get caught up with chasing what they perceive to be the true goals.
Now of course that is not their fault – at least not directly. Goals and Mission Statements are not necessarily as well understood as those who write them think they are. Never mind the wrong directions that may also be embedded in those same statements.
It all comes back to perception. And of course ‘Perception’ is something that a Compleat Biz deals with very well. The detailed interrelationships between Staff, Suppliers, Customers, Shareholders and others are thought through. Effort has been put in to make sure that it is a vision that is so well understood that everybody can benchmark themselves (to a point). It is rather like in the manufacturing world moving from end-of-line inspection to routine quality checks at every stage. The overall result is just so much better.
Well if we are to move forward as a society and stop our major financial institutions from screwing things up again, then the case for pressuring them to adopt the Compleat Biz model is very strong indeed. Nobody can be certain what would have happened this time round – but one thing is clear, some serious questions would have been asked, earlier and louder. The boards of directors could not have shrugged it off and continued on the merry path they were following. And that is my point. Accountability works in both directions. Maybe the problem here was that the shareholders simply wanted money and were not accountable for allowing mayhem in the markets.
So we should be asking questions of the politicians who currently hold the reins, to ensure that these aspects of change are imposed. Just occasionally change of a good kind can be forced through because someone has sufficient clout to do it. There’s been nothing like the present for such an opportunity and it won’t remain open for long. The FSA needs to be made equally aware that it has stakeholders whom it has ignored for far too long. Light touch regulation where the overall objectives have not been fully-understood by all the players (and here I am alluding to the staff at all levels in the regulated businesses) is folly. To deliver that understanding the Regulators themselves need to be more engaging not only in what they are asking for but also WHY?
Experience has shown that individuals in banks and insurers really don’t understand Regulation and Compliance. To most it is a ‘Jobsworth’ rule book imposed from outside. And at an international level the requirements of Basel 2 are incomprehensible to the lay person – yet fundamentally they are all about ensuring capital adequacy for banking operations and hence making sure that what we have just seen should not happen…
I find it hard to believe that using a Compleat Biz model would have delivered anything like such a disaster – at all levels. People would not have been chasing short-term profit at the expense of everything else. And, while we could not necessarily have stopped the collapse in the US housing market, we would have been better insulated from the effects. So I guess a few more of us should turn up at shareholders meetings in future and put something back for what we expect to get out.