High levels of litigation risk are making it hard to fill top posts
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Pity the poor headhunters. Finding people to lead some of the world’s biggest banks is harder than most people think.
The problem seems to be most acute in the UK, where recruiters say the intense level of media and political scrutiny, combined with tough regulation and high litigation risk, is putting people off the top jobs in banking.
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The issue could come to a head this year, because both Barclays and Royal Bank of Scotland are in the process of looking for new chairmen to replace Sir David Walker and Philip Hampton, who are each due to step down in the next 12 months.
You only have to look at the sector’s latest headlines to see why running a bank has become less attractive. Senior Swiss politicians are calling for Brady Dougan to quit as Credit Suisse chief executive over a pending settlement of its long-running tax dispute with the US, which is likely to result in criminal charges against the bank, by US prosecutors.
Jean-Laurent Bonnafé, chief executive of BNP Paribas, was in Washington last week offering a settlement to US prosecutors over the French bank’s alleged violation of sanctions and anti-money laundering rules. It could also face criminal charges.
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Meanwhile, the UK Serious Fraud Office plans to question Bob Diamond, John Varley and other former Barclays’ senior managers as part of its probe into alleged corrupt arrangements in Qatar linked to the bank’s emergency cash call in 2008.
Headhunters say this level of litigation risk makes their job much harder. Sir Win Bischoff, former Lloyds Banking Group chairman, has said one of the biggest changes in the sector was how the issue of bank conduct had risen to the top of the boardroom agenda. The cost of settlements and fines related to alleged misconduct at UK banks has in recent years overtaken the size of provisions they have taken to cover bad loans, according to a recent KPMG study. Douglas Flint, chairman of HSBC, says his board spends as much as two-thirds of its time on “dealing with the aftermath of the crisis”.
Chairing Barclays is so demanding that Sir David has no other non-executive positions. Shareholders in Standard Chartered are increasingly unhappy that Sir John Peace plans to keep juggling two FTSE 100 chairmanships – at the bank and at fashion group Burberry – even after he steps down from Experian in July.
When Lloyds looked to replace Sir Win last year, it drew a blank initially. The lack of suitable external candidates prompted Lord Blackwell, who had been on the nomination committee, to put himself forward and ultimately be selected.
The UK regulators have made approval of applicants for ‘significant influence functions’ at financial services companies much harder to achieve in recent years
The UK regulators have made approval of applicants for “significant influence functions” at financial services companies much harder to achieve in recent years. This may reflect embarrassment over the Reverend Paul Flowers’s appointment as chairman of the Co-operative Bank in 2009. He resigned last year under the cloud of a financial crisis at the bank and a drugs scandal in his personal life.
More applicants have been dropping out of the application process in recent months, including two for the vacant role of finance director at Standard Life, recruiters say, adding that the process is becoming much more intrusive. For instance, they say regulators now ask to read the references provided to support a person’s application.
To chair a big bank requires a record of working at a financial institution, a proven ability to chair a large company’s board, and preferably familiarity with regulation. But almost an entire generation of bankers have been ruled out by the crisis. Never mind Fred Goodwin, Eric Daniels, or Andy Hornby – many of those who worked alongside the three former CEOs on the boards of RBS, Lloyds and HBOS before their collapse are now considered too toxic for a bank’s board.
One possible solution is to look further afield and hire top US, Canadian or Australian executives. London remains an attractive place to live, but there are signs that it may be losing its appeal for top bankers. The European Union’s new bonus cap could tip the balance in favour of places such as New York, Singapore and Hong Kong. Scrutiny of bankers’ pay by the UK’s often hostile media and politicians can be an added hurdle. Headhunters say a US banker who was the best candidate for a top job at a UK financial institution last year turned out to be “too expensive”.
Some top bankers are moving to the more lightly regulated alternative investment sector, for example, Mike Cavanagh’s recent move from JPMorgan Chase to the Carlyle Group, one of the world’s biggest private equity houses.
Since the start of the year, both Barclays and RBS have announced plans to reshape their businesses by exiting parts of their investment banking and international operations. To succeed they need talented and tough chairmen. For this they need to prove that headhunters’ fears are unfounded.
Martin Arnold is the Financial Times’ Banking Editor
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