Previewing the Q2 print edition: Lessons from the chairmen
Barclays’ John McFarlane FCSI and London Stock Exchange Group’s Donald Brydon CBE are two of the financial services sector’s most experienced chairmen. In this preview of the 25th anniversary edition of The Review, they share some of their views on the values and attitudes that will drive the industry forward
Invest in your firmWhen it comes to conduct, according to John McFarlane FCSI, share ownership is the key to keeping management in line.
“If you look at where most of the issues have arisen on conduct, they’ve all been associated with incentive remuneration,” he says. “It was sales remuneration on the retail side that led to payment protection insurance misselling. And on the wholesale side you’ve seen issues relating to foreign exchange and LIBOR and you’d have to think that, despite the governing system of the organisation, if there’s a lot of money at stake by cutting a corner, then you can see why people are attracted to that.”
When John served as CEO of the ANZ Banking Group, he could afford to defer all of his salary and bonuses into stock, bar $43 a year, which was deducted to pay for his staff club membership. “I became an owner of the firm and acted like an owner of the firm. I was worried about long-term shareholder value, and it worked very well.”
Know the difference between right and wrongA simple understanding of the difference between right and wrong behaviour is also fundamental, says John. During the early days of his career, he spent time in dealing rooms where traders were never allowed to have secret conversations. “The values back then were incredible, and so people responded accordingly with their behaviour.”
Today, technology-based communication can make it harder for organisations to control traders’ behaviour. For this reason Barclays has established a Board Reputation Committee, which works to create a cultural environment in which employees know the difference between right and wrong. “It’s been absolutely necessary because practices were weak and incorrect,” he says.
However, he is concerned that a rules-based mentality is affecting regulators’ ability to police the industry and their authority. “When I was at Citibank, I used to get called in to the Bank of England and the head of supervision would say: ‘My people tell me that you’re thinking of doing this’ and I’d say ‘Yes’ and they’d say: ‘Well, we’d rather you didn’t’ and that was the end of it. And that was because he was right, not because he had the power.” Although John believes statutory rules are necessary, as self-regulation has not worked, regulators could reflect on and simplify complex rules.
Move with the times Attitudes have changed immeasurably since Donald Brydon first started out in the industry. While core values such as integrity, shared responsibility, service mentality, value for money, choice and innovation have stood the test of time, attitudes towards the customer are hugely different.
“Looking back, exchanges were about telling the customer how they would receive their service,” says Donald. “Things today have completely changed. If you put customers first today – into a technology world – they decide on the channels and the routes, and how products and services get delivered.”
And trust forms a huge part of this modern business-customer rapport: “The trust that customers, employees and the wider public places in business now is fundamentally essential.” This is the ethos behind the LSEG’s Open Access philosophy, which embraces the trends and demands of the modern world. “If you combine [innovation] with an intense desire to partner with our customers, as opposed to compete or take advantage of them, then building new markets, platforms and products becomes a natural part of the DNA.”
Lead by exampleAccording to Donald, cohesion and collaboration are essential for both the industry and society to thrive. “I want to look at how we can strengthen the ties that bind financial markets and society together, and how we can support innovative high-growth small- and medium-sized enterprises (SMEs), enabling innovation, growth and job creation in the UK, Europe and indeed globally.”
Capitalism, too, can be used to promote these standards. “[It] can be the most democratic, popular and egalitarian economic stewardship model ever created, but it needs to adapt its sharp edges,” says Donald, who argues that risk capital should be distributed directly at the bottom of the entrepreneurial ladder, rather than just debt from the top via lenders. Retail participation in financial markets can also assist in “connecting” the population with capitalism.
But whatever the future brings, the financial sector has a responsibility to society as a whole: “Never has there been a greater need for those leading and administering the financial markets on an international basis to have at the heart and core of their existence two values: integrity and accountability.”
This is a preview of our interviews with John and Donald in the Q2 2017 print edition of The Review. Read the full interview with John on pages 22–24, and with Donald on pages 28–30. The print edition is available to all members who opt in to receive it, except student members. All eligible members who would like to receive future editions in the post should log in to MyCISI, click on My Account/Communications and set their preference to 'Yes'.