The Salz review into management practices at Barclays shows just how much the bank needs a cultural renaissance. It pulls few punches in its assessment: The bank grew too fast, vested too much power at the top and became difficult to manage.
Given the revelations of the last nine months, the findings may strike some as unsurprising. They should be no less shocking for that.
The review cites the growth of investment banking under a former chief executive, Robert E. Diamond Jr. as problematic. The “Alpha Plan,†begun in 2003, sought to double revenue within four years. That encouraged employees to explore the murky area of structured tax solutions, which accounted for 18 percent of investment banking revenue for five years. True, Barclays wasn’t alone: think of UBS and its ill-fated foray into asset-backed securities via internal hedge fund Dillon Read Capital Management. But that’s no exoneration.
Yes, Barclays “Transform†programm means many of the report’s 34 recommendations are under way. Others, such as a proposal to include non-executive directors with banking experience, are obvious.
Much remains to be done on pay and management structure, however. Barclays needs to reshape its executive committee. When he was chief executive, John Varley restricted membership to between four and six people. Mr. Diamond, his successor, improved things but a too-small coterie of senior executives retained excessive control. And there’s still no human resources representative on Barclays’ board.
Long-term incentive plans, meanwhile, are too complicated and offered to too many. Barclays needs to prevent the sense of entitlement prevalent in the past from returning. The Salz report’s observation that compensation for the 70 best paid executives at Barclays was significantly above their competitors illustrates the scale of the challenge. It’s a lesson that has wider relevance for the financial industry.
Reforming culture at Barclays will take time, as the report says, and require perseverance. It will also require deftness of touch. The acronym-loving Mr. Jenkins, who introduced “LiMME†(Lives Made Much Easier) in 2010, needs to avoid overwhelming staff with new initiatives. Since many hard-nosed Barclays bankers may scoff at what they see as soft imperatives, the work of Anthony Salz provides helpful ammunition for those who seek to change the bank.
Dominic Elliott is a columnist at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
