Corporate Governance & Ethics MSc Birkbeck College, University of London Tim Lewis

1. Critical Approaches to Banking Corporate Governancein the Wake of the Financial Crisis:Lessons from the Case Of Barclays in the Wake of the Libor Scandal and others .. Corporate Governance & Ethics MSc Birkbeck College, University of London Tim Lewis

2. 1. MAINSTREAM APPROACHES TO BANKiNG CORPORATE GOVERNANCE ?

3. Corporate Governance Structure: Agency Model Board of Directors Shareholders Managers • Principal agent theory, assumes that the owners of the enterprise (the principal) and those that manage it (the agents) will have different interests. (Clarke, 2007, P5).

4. Corporate Governance Structure: Stewardship Board of Directors Shareholders Managers • Stewardship theory holds there is no conflict of interest between managers and owners. Managers are incentivised to act, not as opportunistic agents, but as stewards who act in the best interest of owners. (Clarke, 2007, P9).

5. Stakeholder model of Corporate Governance ( Freeman, (1984), ed Crane, A et al, 2008 P114) Stakeholders theory, is based upon the premise that organisations should be responsible to a wider range of stakeholders, than the narrow interests of one group. (Cornforth, 2007)

6. 2.1 CRITICISMS OF PRINCIPLE AGENCY THEORY ?

7. Barclays AGM-April 2012

8. Corporate Governance Agents: Stakeholder Participation & Engagement Key stakeholders within a PLC such as Shareholders, Executive and Non Executive board members, which currently directly influence the organisation’s strategic management, may be classed as Participants. Board of Directors Participants Shareholders Managers The Stakeholders within a PLC, such as employees, regulators or politicians who indirectly influence the organisation’s strategy may be managed through Engagement Government Employees Engagement Media & Opinion Formers Regulators (Low & Cowton, 2004, P46)

9. 2.2 CRITICISMS OF STEWARDSHIP THEORY ?

10. Good Stewardship .. ( Matt Cartoon, Telegraph Newspapers)

11. Corporate Governance Stewardship: Managerial Hegemony The Case of Barclays Board of Directors Managerial Hegemony in which CEO Dominates in times of Crisis CEO Pay in 2012 was estimated to be worth £17m including a discretionary bonus of £2.7 m and included payment of a US/UK relocation tax bill of £5.7m Government Vickers Reform split investment and commercial banking Kay report re: Stewardship reforms Managers Employees The Guardian reported in April 2012, that Barclays paid £2.1 blln in bonuses in 2011, three times the £700m used to pay shareholder dividend. Media & Opinion Formers Robert Peston blogs/ UK Uncut on citizenship and taxation Regulators Lord Turner’s warning to the Board regarding the Board appointment of Bob Diamond as CEO. Mervyn King asks for the removal of CEO after Liber scandal. Shareholders At the 2012 AGM 26.9% of shareholders voted no to the company’s executive pay package The theory of Managerial Hegemony, assumes that the role of the board in crisis is subservient to the interest of one or two dominant chairman or executive leaders. (Cornforth, 2007)

12. Institutional Role of the Board in Managing Strategy /Transformation (Adapted from Garratt(2010) P33) External ‘Flexibility’ Data from External Stakeholders Main Board Responsibility (Strategy) Data from Internal Stakeholders Internal ‘Fit’

13. 2.3 CRITICISMS OF STAKEHOLDER THEORY ?

14. ( (Monks, 2013, KE4-10%)

15. ( (Monks, 2013, KE4-10%)

16. 3. alteRNATIVE CRITICAL APPROACHES ??

17. Further Research: Towards a New Model of Corporate Governance ? Female Board Leadership, Remuneration and Strategy Common Good: Good Society, Good Banks, Functioning Markets and Strong Regulation

18. - FEMALE LED BANKING CORPORATE Governance ?

19. Lord Davis Report 2011: 25% Women Directors by 2015 • Some Success in 2013: • 19% of FTSE 100 Directors are Women(up from 14% in 2012) * • 12% of MDs are now Women (up from 6% from last year)* • 27% New Female Appointments to FTSE 100 Boards over H2 2013** • 15% of FTSE 250 Directors are Women ** Astbury Marsden Research 28/10/2013* & Cranfield``Research 18/11/2013** • 3 CEOs women in FTSE 100: • Angela Ahrendts - Burberry, leaving UK for Apple 2014 • Alison Cooper - Imperial Tobabcco, • Calorlyn McCall – Easyjet • Liv Garfield – BT OPENREACH Joining Severn Trent Water in 2014

20. Common Fate, Common Bond ?* Strategy ? Lehman ** Sisters Debate ? Paradox of Tokenism ? Performance ? Diversity ? Woman as Enablers ? Quotas on Boards ? Prescription ? /Ascription ?*** Gender as single Variable ? Single/Married/Children /No Children ? Ethnicity ? Nationality? Age ?/ Class ? (*Mitter, S, 1986), (**Morris, Independent, 04/08/2009), (Lagarde, NY Times 10/025/2010), *** (Clegg et al, 2007, P187)

21. Research Supports the idea that Men and Women, approach work with differing expectations, values and employment needs ( Peatie & Taylor, Telegraph Newspapers, 05/2012)

22. Research Supports the idea that Men and Women, approach work with differing expectations, values and employment needs • Differing gender attitudes to Corporate Social Responsibility / Ethics ? • ‘Men justifying ends through legal means, economic Rationale - Rules Based’ • ‘Women justifying means through sentiment/Social Outcomes’ Moral Obligations or Discretionary Concerns ? • Correlation between Strategic HRM policies and Commitment and Engagement ? • Coalescing gender attitudes around flexible working ? Diversity ? Employment Rights ? ( Brammar et al, 2007, P1706, Peterson, 2004, P304) ( Bones, 2011, P141, Konzellmann, 2005, P545)

23. Women in Finance Research Findings: Risk Averse (2013) - Palvia et al LehemanSisters (2011)- Nelson Argues the male /female ‘sameness’ vs ‘difference’ debate is a distraction with regard to the financial crisis. It exaggerates sex differences in behaviour between men and women at work and stereotypes women (all be it benevolently) as being overly cautious; and lets men off the hook socially and morally for reckless and irresponsible actions. It also ignores the social impact of the financial crisis upon women over men, for example the impact on household budgets, move to part-time working and impact of redundancies • Hypothesises whether women led boards’ are more risk averse than men. • Hold higher equity capital and reduce default risk than men. • Although not specifically gender related, evidence suggesting some correlation that smaller banks with female Chairpersons and CEOs were less likely to fail during the financial crisis than those led by men.

24. Alternative Corporate Governance Structures: Female Led ? Female Board Leadership /Representation Strategy /Performance Remuneration ( ?Lewis, Milan, June 2013)

25. - CONDUCT LED BANKING CORPORATE Governance ?

26. Monks, Reich et al V’s FriedmanMoises, Gladwell, World is Flat, Thomas Friedman, The End of Power, Naim Moises David V’s Goliath Malcolm Gladwell • Availability of Social Technology, Personal Devices, The growth of the BRICS, the arab spring, making the world smaller… and challenging traditional institutions and power. • Within Banking sector : Shadow banking, Hedge Funds, Crowd source funding, Pay day Loans co, new start-ups Metro Bank, Wonga ..

27. Non-stakeholder activism - UK Uncut ( UK Uncut Website, Viewed 28/11/2012)

28. Occupy – The City December 2011

29. ‘Twitterati’ Protest ( Guardian Newspapers, 06/11/2013)

30. Thought Leadership • FT/ New Statesman – Future of Capitalism and Democracy • Commons Select Committee/G8 – Tax evasion • Banking 3.0 Bret King – New Media Engagement via Yammer, Twitter, Facebook .. • St Paul’s Institute – Good People, Good Money, Good Banks - Faith in Finance - Equality • Steare,R ‘Ethicability: How to decide what’s right and find the courage to do it’‘MoralDNA’ • Sandel M – ‘What Money Can’t Buy, the Moral Limits of Markets’ , ‘Justice – What is the right thing to do ?’

31. What is the Right Thing To Do ? ‘Custom will reconcile people to any atrocity, and fashion will drive them to acquire any custom’ George Bernard Shaw. Golden Rule: • Treat others as you would like to be treated yourself • Empathy, Character Golden Mean: • Difficult in an age of excess to determine What would be the balanced approach ? • Integrity, Best Decision, Treat customers fairly. Jim Collin’s argues what defines Good to Great Companies are those with ‘a common corporate culture of personal humility, intense resolve (courage) and discipline (self-control).’ ‘The superior person understands what is right, the inferior man understands what will sell. ‘ Confucius (Steare, 2013, KE)

32. Alternative Corporate Governance Structure: Conduct Led ? Moral Sentiment Functioning Markets Strong Regulation (? Lewis , Milan 2013 - Adapted from ABC Welby, St Paul’s Institute, June 2013)

33. 4. TOWARDS A NEW MODEL OF BANKING CORPORATE GOVERNANCE ?

34. Moral Sentiments .. ( Matt Cartoon, Telegraph Newspapers)

35. Parliamentary Banking Commission ( Report of the Parliamentary Commission on Banking Standards, June 2013 )

36. FINANACIAL CONDUCT AUTHORITY: BUSINESS PRINCIPLES‘where morals do not act as a deterrent then the law must step in. It has to make society’s disapproval clear and give courage to speak out and make things change’ Tracy McDermott, FCA St Paul’s Institute debate 11/04/2013, (St Pauls Institute/CCLA, 2013 P4) FCA website (Viewed 03/11/2-03)

37. (ST Paul’s Institute/CCLA, 2013, P6)

38. The City and the Archbishop June 2013 St Pauls Institute Debate • Justin Welby argued that ‘Good Banks’ needed to motivated by virtue and a belief in human flourishing rather than merely bonuses and penalties. * July 2013 • Archbishop pledges to put Wonga and other Pay Day lenders out of business, by establishing credit unions. • Later embarrassed as it turns out that part of the Church of England’s’ own investment funds had indirectly invested in Wonga via a managed fund product.** September 2013 • Consortium led by hedge fund Corsair Capital and backed by the Church of England announce investment in RBS spin-off: Williams and Glyn. • W&G will be the owner of 314 branches, 1.7 mlln customers, planned to be refloated and launched in 2015. • Church of England confirm W&G will ‘operate to the highest possible ethical standards’ • W&G (Recently floated TSB) will market themselves as local community banks, both hoping to benefit from the backlash associated with the scandals of the big 5 high st banks and to take advantage of 7-day switching. November 2013 • Regulation of payday lenders transferred from the office of fair trading to the FCA. • New legislation pledged by HM Government to cap the fees associated with payday lending. (ST Paul’s Institute/CCLA, 2013*), (BBC News, 26/07/2013**), (Guardian Newspapers, Reuters 29/09/2013***)

39. Move your Money Scorecard Cumberland, Coventry Building Societies and Metro Bank amongst the Highest Rated Big Four Ranked RED Barclays Lowest Rated. Laura Wiloughby said Barclays was dragged down by Libor/PPi and Number of customer complaints. moveyourmoney.org.uk Research from Ethical Consumer Winch, Telegraph, 16/09/2013 (Viewed 03/11/2-03)

40. Institutional Role of the Board in Managing Strategy /Transformation based upon Conduct (Adapted from Garratt(2010) P33) External ‘Flexibility’ Data from External Stakeholders Main Board Responsibility (Strategy) Data from Internal Stakeholders Internal ‘Fit’

41. Complex Multi Dimensional: Multiple Agents Sentiments & Values CEO BOARD OF DIRECTORS FEMALE LEADERSHIP FUNCTIONING MARKETS MORAL SENTIMENTS STRATEGY MEDIA & OPINION FORMERS REGULATORS EMPLOYEES GOVERNMENT REGULATION COMMITMENT /ENGAGEMENT SHAREHOLDERS MANAGERS

42. 5. Postscript

43. The case of the Co-op Bank • Good example of a stakeholder based business model . • Ethics based on wider stakeholders at the heart of the business. • Employee and Customer membership based participation in the running of the business. • Recent scandals following the merger of the Co-op with Britannia exposes the weakness of the mutual governance model when it comes to expansion of the business and promotion of laypeople to the board ? • Or was this a case of poor due diligence on both counts and in the case of capital exposures associated with the acquisition of the Verde bank branches from Lloyds, an example of the new Twin Peaks PCA and FCA working ? • DISCUSS ??

44. The case of the Co-op Bank.. ( Matt Cartoon, Telegraph Newspapers)

45. Critical Approaches to Banking Corporate Governancein the Wake of the Financial Crisis:Lessons from the Case Of Barclays in the Wake of the Libor Scandal and others .. Some interim Conclusions, Recommendations and alternative tools of analysis .. Story To Be Continued ..

46. ANY QUESTIONS ? ( Matt Cartoon, Telegraph Newspapers)

47. Bibliography Astbury Marsden Reseach Tobin, L ‘City’s female high-flyer total doubles’ Evening Standard Newspapers (28/10/2013) BBC News (26/07/2013) Wonga row: Archbishop of Canterbury ‘embarrassed’ over church funds’ http://www.bbc.co.uk/news/business-23459932 (Viewed 29/11/2013) Bones, C (2011) ‘The Cult of the Leader: A Manifesto for more Authentic Business.’ John Wiley& Sons: Chichester Bones, C (2007) ‘Engagement is at the heart of successful M&A’ Ivey Business Journal, Richard Ivey School of Business, London, Ontario http://www.iveybusinessjournal.com/topics/strategy/engagement-is-at-the-heart-of-a-successful-ma (Viewed 09/08/2012) Brammer, S., Millington, A. and Rayton, B. (2007) The Contribution of CSR to Organizational Commitment, International Journal of HRM, Vol. 18, October, pp. 1701-19. Ed Clarke, T (2007) ‘Theories of Corporate Governance: The Philosophical Foundations of Corporate Governance’ Routledge: London Cranfield Research ‘Wave of New Talent’ Goodway, N “BT star Liv Garfield to be New chief of Severn Trent. Evening Standard Newspapers (18/11/2013) Clegg. S., Kornberger, M. & Pitsis, T. (2008). Managing & Organizations. (2nd Edition) Sage: London Cornforth, C (2007) ‘The Governance of Public and Non Profit Organizations’ Routledge Studies in the Management of Non Profit Organisations Taylor & Francis: London Kindle Edition Davis, E Lord of Abersoch (2011)‘Women on Boards: February 2011’ Crown publications: UK Department for Business Innovation and Skills (BIS). London. http://www.bis.gov.uk/assets/biscore/business-law/docs/w/11-745-women-on-boards.pdf (Viewed 17/08/2012) Freidman, T (2005) ‘The World is Flat: A Brief History of the Globalized World in the 21st Century’ Allen Lane: London Freeman, R E. (1984) ‘Stakeholder Management: Framework and Philosophy’ (P111 – 133) In Ed: Crane, A., Matten, D., & Spence L. (2008) Corporate Social Responsibility: Readings and cases in a global context. Routledge: Abingdon & New York:

48. Bibliography Garratt, B (2010) ‘The Fish Rots from the Head: Developing Effective Board Directors’ Profile Books: London Gladwell, M (2013) ’ David and Goliath: Underdogs, Misfits and the Art of Battling Giants’ Ed Gospel, H and Pendleton, A (2005) ‘Corporate Governance and Labour Management’ Oxford University Press: Oxford Guardian Newspapers Letters Page (06/11/2013) ‘Russell Brands Views are great. But where’s the strategy’ http://www.theguardian.com/culture/2013/nov/06/russell-brand-ideas-great-where-strategy (Viewed 29/11/2013) King, B (2013) Bank 3.0 Why Banking is no longer somewhere to go, but something to do Marshall Cavendish, Singapore Kindle Edition Konzelmann, S, Wilkinson, F, Fovargue-Davis M & Sankey, D ‘Governance Regulation and Financial Market Instability: The Implications for Policy’ Cambridge Journal of Economics (September 2010). Vol: 34, P929-954. (Advanced Access Publication 17 February 2010)  Konzelmann, S, Conway, N, Trenberth, L and Wilkinson, F, Corporate Governance and Human Resource Management. British Journal of Industrial Relations, Vol. 44, No. 3, pp. 541-567, September 2006. Lagarde, C (NY Times Newspaper 10/05/2010) ‘Women, power and the challenge of the financial crisis’ http://www.nytimes.com/2010/05/11/opinion/11iht-edlagarde.html (Viewed 14/08/2012) Low, C & Cowton, C (2004) ‘Beyond stakeholder engagement: the challenges of stakeholder participation in corporate governance’ International Journal of Business Governance and Ethics, Vol: 1(No: 1), P45 -55 Mace ML (1971) ‘Directors: Myth and Reality’ Harvard Business Press P96-108 In Ed Clarke, T (2007) ‘Theories of Corporate Governance: The Philosophical Foundations of Corporate Governance’ Routledge: London Matt Cartoons, Telegraph Newspapers McElvey, A ‘Yes to more women on boards – but not via quotas’ Evening Standard Newspapers 20/11/2013 Mitter, S (1986) ‘Common Fate, Common Bond: Women in the Global Economy’ Pluto Press: London Monks, R (2013) ‘Citizens Disunited: Passive investors, Drone CEOs and the Corporate Capture of the American Dream’ Miniver Press, United States. Kindle Edition

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50. Bibliography Sandel M (2009) ‘Justice: What is the Right thing to do ?’ Penguin Books: London Saltz. A (April 2013) ‘Salz Review: An independent Review of Barclays Business Practice’ An independent review commissioned by Barclays PLC, London https://www.salzreview.co.uk/c/document_library/get_file?uuid=557994c9-9c7f-4037-887b-8b5623bed25e&groupId=4705611(Viewed 22/06/2013) Sandberg, S (2013) ‘Lean In: Women, Work and the Will to Work’ Random House, New York Kindle Edition Sorkin, A.R (2010) ‘Inside the Battle to Save Wall Street: Too Big To Fail’ Penguin Books: London Steare, R (2013)’ Ethicability: How to Decide What’s Right and Find the Courage to Do it.’ Roger Stear Publishing, London. St Paul’s Institute Website ‘Good Banks Wednesday 12th June - 6.00pm’ http://www.stpaulsinstitute.org.uk/dialogue/st-pauls-institute/article/2013/feb/15/-the-city-and-the-common-good-what (Viewed 22/06/2013) St Pauls Institute (2013) The City and the Common Good. What Kind of City Do you Want ? St Pauls Institute: CCLA Good Investment Tett, G (FT Newspapers 02/07/2012) ‘Don’t just say sorry, Bob, act like a steward’ http://www.ft.com/cms/s/0/479d31c6-c3a9-11e1-966e-00144feabdc0.html#axzz22UtTMRbY (Viewed 05/07/2012) Tett, G (2009) ‘Fool’s Gold: How unrestrained greed corrupted a dream, shattered global markets and unleashed a catastrophe’ Little Brown: London Treanor, J. (Guardian Newspaper 19/04/2012) ‘Barclays chief Bob Diamond links part of bonus to improved performance’ http://www.guardian.co.uk/business/2012/apr/19/barclays-chief-bob-diamond-bonus (Viewed 30/08/2012). Treanor,, J (Guardian Newspapers 27/09/2013)RBS sells 314 branches to church-backed Corsair consortium’ http://www.theguardian.com/business/2013/sep/27/rbs-branches-church-corsair-consortium (Viewed 29/11/2013) UK Uncut website (Press release: 18/02/2011) ‘UK Uncut plans weekend of bank protests’ (Viewed 03/08/2012) http://www.ukuncut.org.uk/blog/press-release-uk-uncut-plans-weekend-of-bank-protests