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Wednesday, 14 November 2018

Salz and the £15m Barclays travesty

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The review into the bank’s culture was one big waste of money, argues IFR editor-at-large Keith Mullin

HAVE YOU EVER spent the thick end of £15m but had that nagging feeling that you’ve been done over? I haven’t, personally. Actually, I haven’t ever spent £15m period, although I live in eternal hope …

But that’s exactly how Barclays should have felt when it received the Salz Review, 236 pages of sanctimonious claptrap about culture, with the compulsory but pointless chapter on the bank’s recent build-out and one on the financial crisis just to give the non-executive directors and the executive board the impression that the independent review of business practices left no stone unturned.

How on earth did Anthony Salz run up £15m? Well, report leadership, consulting (Russell Collins from Boston Consulting Group was deputy reviewer and the BCG invoice would doubtless have been edged with 24-carat gold), media, PR (Citigate Dewe Rogerson) and report writing cost a staggering £11.9m.

That includes £1.5m – excluding VAT – paid to Rothschild for Salz’s time (nice work when you can get it, Anthony); law firm Herbert Smith charged £0.7m in fees and expenses for legal advice; there was £1m for the office and IT equipment; and £100K in customer research, travel and printing. On top of that, Herbert Smith lobbed in an invoice for £1.1m in legal fees to support the interview process. Salz even had an editorial consultant!

PUT SIMPLY: ANTONY Jenkins just paid close to US$100K per page for what I reckon I could have written a hell of lot more quickly. And I would have done it for a fraction of £15m. I certainly wouldn’t have charged £1m for an office. I would have done it from home and only charged out for the copious amounts of emergency gin I would have needed to dull the tedium.

There’s a whole lot of righteousness in the report around culture and the silo mentality. Cultural discussions in banking have been serially overdone and I’m seriously tired of it, largely because it’s a red herring. That dewy-eyed touchy-feely stuff about doing the right thing by your stakeholders is so, well, old.

Salz talks about the different cultures at play across the Barclays group. I defy anyone to define what the culture should be of a diversified financial services conglomerate that includes retail and consumer banking, small business banking, corporate banking for large companies and investment banking.

That’s my point. The over-riding principle that guides businesses of all hues doesn’t need to be any more than: don’t break the law; don’t leg over customers; and don’t game the system. That spirit-of-the-law versus letter-of-the-law stuff that Salz references is a bit of nuanced conversation but, yeah, why not aim to respect the spirit of the law?

Having a can-do positive culture with caps on short-term compensation and control functions with teeth etc won’t stop those who set out to break the law. One of Salz’s suggestions regarding hiring is for the bank to take into account candidates’ cultural underpinnings and overlay those onto those of Barclays’ new set of cultural values. What the hell does that mean?

Barclays is a bank, not a hippy commune

He reckons Barclays should look beyond the candidate’s track record in generating revenue. I can only imagine an interview with, say, a prospective foreign exchange trading hire that delves into the Twilight Zone of cultural values and moral code. Barclays is a bank, not a hippy commune. Salz has taken the debate into the realms of the Theatre of the Absurd, which is presumably where he met Jenkins and his quest to “embed our purpose and values across Barclays”.

WILL SALZ’S REVIEW help Jenkins in his mission to become the ‘Go-To’ bank for his stakeholders? More specifically, in his quest to deliver a return in excess of cost of equity; cut headcount by 3,700; cut the cost base by £1.7bn; get RWA down to £440bn; deliver a CET1 ratio above 10.5%; and up the dividend payout ratio to 30% – all by 2015? I severely doubt it.

Many of the 34 recommendations are so self-evident it’s untrue; others are just nonsense: Setting high standards? Yes, honestly, that’s one. Learning from mistakes. That’s one too. Meeting customers’ needs and expectations; Bringing the values to life through learning programmes (I love that one); Monitoring progress (yes, really?); Maintaining a global code of conduct.

I also love this one: “Barclays should include among its non-executive directors a sufficient number with directly relevant banking expertise … ” Now that’s positively revolutionary. How about: “The board must be actively engaged in the process of improving its own effectiveness … ”

“The group CEO should be responsible for building a cohesive senior executive team”. The board should design, adopt and publish from time to time a communications policy for promoting effective and open communication with shareholders; the head of HR should sit on the group executive committee; Barclays should produce a clear policy statement as to how it fulfils its purpose with respect to its employees.

Whether it’s aligning pay to levels that reflect individual talent and the contributions that individuals make; aiming to link pay to the long-term success of the institution; having clear remuneration principles; or developing a strong risk culture, a culture where employees feel that escalating issues is safe and valued, the recommendations are obvious and frankly suburban.

I suspect they came straight out of BCG’s “Stating the Blindingly Obvious 1.01” manual for trainee management consultants and that Salz and Collins must have spent the past eight months … I dunno. Sipping expensive gin Martinis?

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