Has Mervyn lost touch with reality? No, but the City has lost its moral compass
Mervyn King’s interview with Charles Moore in the Daily Telegraph, in which the governor of the Bank of England accused the financial sector of exploiting gullible customers, gambling with other people’s money, lacking a moral compass, paying themselves excessively and relying on taxpayer bailouts when it all goes wrong, elicited some strong reactions. One unnamed City figure said it was ‘not correct’ for the governor to make it quite so clear that ‘he doesn’t like bankers’; another called him ‘an embittered old man with no appreciation of reality’.
It is indeed hard to imagine any previous incumbent being quite so preacherly towards his own parish, but the truth is that the City, not the governor, has lost touch with reality. The financial community remains trapped in the ‘silo mentality’ Gillian Tett wrote about in Fool’s Gold — the collective delusion that its unique and untarnished brilliance deserves exceptional rewards. King’s observations, by contrast, strike a chord with public sentiment, even though I’m sure he has been owlishly surprised by their impact.
In particular, I suspect the thinking public agrees with him that the banking sector presents a problem of ‘moral attitude’ as well as of risk management. I made a similar point in a recent Policy Exchange debate about bankers’ pay, in response to Tom Huertas from the FSA, who had just described new rules detailing when and how bonuses can be paid but not tackling the bigger, thornier question of what constitutes a fair allocation of rewards for success.
Such rule-tinkering does little to assuage the widespread public indignation about ‘City greed’ that has become such a corrosive element in national life, I said. Nor does it address the syndrome by which inflated pay prospects fuel risk-taking, short-termism and disrespect for shareholders which in turn make the financial sector so unstable. By all means reward consistent top performers, but for heaven’s sake keep a sense of proportion. How is it possible, I might have added, that the board of Barclays can think it fair to pay £554 million to their 231 senior employees (averaging £2.4 million each) in 2010, but only £531 million in dividends to their entire body of shareholders?
Mr Huertas deflected my argument by concluding that ‘this is an issue of resolution, not of remuneration’ — meaning that if the system enables a crippled bank to be unwound at investors’ expense, without a bailout or a domino collapse, then regulators will have less need to address dangerous behaviour because market forces will do it for them: good banks will prosper, bad ones will fail, new ones will spring up to fill gaps.
Before we reach that utopia, however, bankers need to understand why their collective reputation has fallen so low. ‘Widespread public indignation’ may be dismissed in some City boardrooms as too ephemeral and too easily manipulated by politicians to merit serious response — though NatWest seems to be offering just that with its ‘customer charter’ ad campaign. But what most of them have not grasped is that the indignation is more than mere bonus-envy; it is also a judgment about competence and trustworthiness. They should really be worried at having lost the respect of their business peers in other sectors, and of the officials who watch over them. Mervyn King has done them a service by making that clear; they should answer not by sneering at him, but by examining their own consciences.
In perpetuity
By way of balance, readers continue to send me anecdotal examples of good ‘relationship banking’, in response to my appeal last year. This week brought a recollection from 90-year-old retired solicitor John Smyth of Liverpool, where a keen young manager of Barclays won his personal account in the mid-1950s by offering him ‘free banking for life’. This was in the days when there were charges on current accounts, but Mr Smyth enjoyed free banking for 30 years before it was offered to everyone (so long as they stayed in credit) in the competitive frenzy of the 1980s — and he should go on enjoying it even if charges are reintroduced, since he has hung on to a letter telling him the concession applies ‘in perpetuity’. Happily, the keen young manager was my father — though I fear he may have exceeded his authority.
Too many blokes
I have also had amusing responses to my more recent appeal for suggestions for the ideal all-female board of a FTSE company — including Pauline Prescott, legendary Vogue editor Anna Wintour, former MI5 chief Baroness Manningham-Buller, and Betty the indomitable barmaid from Coronation Street. And a survey from the law firm Eversheds has encouraged my view that our pension funds would be safer if the companies they invest in were in the hands of gender-balanced boards. The survey found that the best share-price performance among 241 leading companies around the world between October 2007 and December 2009 was to be found in those with smaller boards (11 members or fewer), more female directors and a higher proportion of independent directors: that is, I deduce, those with the highest proportion of female non-execs to senior executive men.
One reader tells me we should look to the enlightened example of Finland, where the business scene is ‘definitely less male-dominated’ and even the language avoids gender distinctions. But I’m not sure how to apply that thought and Eversheds’ analysis to Nokia, the mobile phone company which accounts for a significant slice of Finnish GDP but whose shares have fallen by 40 per cent in the past year in response to poor performance in the ‘smartphone’ market.
It looks like an almost perfect model: a board of only nine directors, of whom all except chairman Jorma Ollila, a (male) former Nokia chief executive, are ‘independent’ and three, led by vice chairman Dame Marjorie Scardino from the Pearson media group, are women — as are four of Nokia’s 13-strong executive ‘leadership team’. I can only draw one conclusion: still too many blokes.
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