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LeadershipinBankingDuringtheFinancialCrisisin2008
BachelorThesisforObtainingtheDegree
BachelorofScience
InternationalManagement
SubmittedtoDr.DimitrisChristopoulos
VivianTsolakis
1321012
Vienna,11June2016
2
Affidavit
IherebyaffirmthatthisBachelor’sThesisrepresentsmyownwrittenworkandthatI
haveusednosourcesandaidsotherthanthoseindicated.Allpassagesquotedfrom
publicationsorparaphrasedfromthesesourcesareproperlycitedandattributed.
The thesiswasnot submitted in the sameor ina substantially similar version,not
evenpartially,toanotherexaminationboardandwasnotpublishedelsewhere.
Date Signature
3
Abstract
This thesis analyzes the topic of leadership and management styles which were
appliedinUKbanksduringthefinancialcrisisin2008.Thepurposeofthestudyisto
determinealeadershipstylewhichiseffectiveandleadstobeneficialoutcomesand
even success for a bank. The actions taken by the leadership of two UK banking
institutionswillbesubjecttoacriticalanalysistoassistinthedeterminationofthe
ideal leadership style. Primary and secondary data was collected to ensure a
comprehensive amountof high value information. Theprimarydatawas collected
during interviews with employees in senior management at RBS (Royal Bank of
Scotland) and HSBC (Hongkong Shanghai Banking Corporation). Four participants
were interviewed, two for each bank. The conclusion of the case study is that an
authoritarianleadershipstyleleadstoahostileandunproductiveworkenvironment.
On theother hand, a delegative leadership style empowers employees to takeon
more responsibility and fosters a productive and inclusive work environment. A
participativeleadershipstyleisalsoanoptionifone'spurposeittoleadsuccessfully.
There is no ideal leadership style in general, therefore it should be chosen
dependingontheneedofthebusiness.Thisthesisisbeneficialtoleadersinbanking,
but especially to RBS and HSBCwhose leadership andmanagementwas analyzed
extensively.
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TableofContents
Affidavit......................................................................................................2
Abstract......................................................................................................3
TableofContents........................................................................................4
ListofFigures..............................................................................................5
ListofTables...............................................................................................5
1 ExecutiveSummary..............................................................................6
2 Introduction.........................................................................................8
3 LiteratureReview.................................................................................8
4 TheFinancialCrisis.............................................................................18
5 BankingRegulations...........................................................................21
6 Methodology......................................................................................24
7 CaseStudy..........................................................................................26
8 DataAnalysis......................................................................................33
9 Conclusion,RecommendationsandLimitations..................................40
Bibliography..............................................................................................43
Appendices...............................................................................................47
5
ListofFigures
Figure1:RBSEarning/losspershare(GBP)................................................................28
Figure2:RBSIndustryrisk2008-geographicalanalysis............................................29
Figure3:HSBCEarning/losspershare(USD).............................................................32
Figure4:HSBCTotalAssets2008...............................................................................33
ListofTables
Table1:Two-DimensionalModelofSubordinateParticipation................................11
6
1 ExecutiveSummary
1.1 ResearchObjectives
Theaimofthisthesisistounderstandtheleadershipandmanagementstyleinthe
UKbankingsectorduring the financialcrisis in2008andcompare it to thecurrent
statusoftheindustry.
The specific research questions which are the foundation of this thesis and were
aimedtoanswerarethefollowing:
1. What impact did the financial crisis in 2008 have on the leadership and
managementstyleoftheCEOsandtheboardofdirectors?
2. What differentiated the leadership andmanagement style of bankswhich
didrequireabailoutfrombankswhichdidnotrequireabailout?
The results of this thesis can be used as a guide for seniormanagers in banks to
reflect on their own leadership style, and how it can be improved, to achieve the
mostsuccessfuloutcomepossible.
1.2 StatementofMethod
To give an extensive analysis of the thesis topic the research approachwhichwas
selectedforthethesisisthequalitativemethodsapproach.
The research design will use case studies which help to provide a more in-depth
analysis of leadership in banking during the financial crisis. Interviews will be
conductedtogiveacomprehensiveunderstandingofthedevelopments inbanking
leadershipduringthattimeframe.
The data on which the conclusions in the thesis are based on are primary and
secondary data, including but not limited to interviews with industry experts,
academicpapersandarticlesfromadiverserangeofmediasources.
The timeframeof theanalysis isa comparisonof the situationduring the financial
crisis in 2008 and the current situation regarding this topic in the UK banking
industry.
7
1.3 CaseStudy
Forabetterunderstandingoftheresearchtopicacasestudyisprovided.Inthecase
studytwoUKbanksarecomparedandthedifferencesintheircorporateleadership
andmanagementstyleisanalyzedcritically.Thebankschosenforthecasestudyare
Royal Bank of Scotland Group PLC (“RBS”) and Hongkong and Shanghai Banking
CorporationHoldingsPLC(“HSBC”).Thecriteriaforchoosingthesespecificbanksare
thefollowing:
• management, leadership and corporate governance before and during the
crisis
• management, leadershipandcorporategovernancechangesinresponseto
thecrisis.
RBSwillbeusedastheexampleofabankwhichperformedpoorlywhilstnavigating
thechallengesofthecrisis.
WhileHSBCalsoperformedpoorly it is neverthelessoneof the largebankswhich
performedbetteracrosstheUKsector.Duetothis,HSBCdidnothavetobebailed
outbytheUKgovernment.Additionally,HSBCissimilartoRBSinsize,structure,and
business model. This makes the easily banks comparable to each other and
representativeoflargeUKbankswhichdobusinessglobally.
Inparticular, the case studydealswith thebehaviorsandactionsof theCEOsand
Boardmembersbeforeandduringthe2008crisisandcomparesthemtothecurrent
situation.
1.4 KeyFindings,ConclusionandRecommendations
Thekeyfindingof this thesis is thatanautocratic leadershipstyle inbankinghasa
destructiveeffectonabankand itsbusiness.Furthermore, iswasestablished that
there is no one best leadership approachwhich can be generalized for thewhole
banking industry. To select the best practice, it is recommended to analyze the
situationofthebusiness.
Asmentionedbefore,thefindingsfromthisthesisarevaluabletoseniormanagers
inbanking. Itexplainswhich leadershipstyles leadtopositiveoutcomesandwhich
8
lead tonegativeoutcomes.Furthermore, itexpandson theeffectsofapplying the
incorrect leadership style, which partly was the financial crisis but largely the
aftermathcausedbyit.
2 Introduction
Thefinancialcrisisin2008ledtothecollapseofglobaleconomies.Thecauseswhich
lead to the crisis were the systemic failures of the industry which had been
perpetuated over the years, as there was no real oversight and there were only
looseregulationsinplace.
The first step in deregulating the banking system was caused in 1998 when the
Glass-Steagall act was repealed during the Clinton administration. This allowed
bankstousedepositors’moneytomakeriskyinvestmentswhichinturnhelpedthe
banks grow more quickly. Over the years the deregulation continued and banks
exploitedtheseopportunities(Swift,2011).
The systemic risk in the banking industry, low capital requirements, and the
inclination to invest into non-core businesses and products were causes which
contributed to the financial crisis.Thesecauses, combinedwith thebonusculture,
the “too big to fail” mentality of the bankers, and their leadership style and
managementpracticescontributedtothecrisis.
InthisthesistheleadershipstyleandmanagementpracticesoftwoUKbankswillbe
analyzed to determine the extent to which these factors influenced their
performanceduringthefinancialcrisis.
3 LiteratureReview
3.1 Leadership
3.1.1 Definition
Therearealargenumberofdifferentdefinitionsforleadership.Thereasonforthis
isthatleadershipasatopichasneverbeenanalyzedcompletelybutratherpartsof
9
ithavebeenresearched.Tofindanencompassingdefinitionof leadershipWinston
and Patterson (2006) from Regent University researched 160 articles and books
whichcontaineddifferentinterpretationsofthesubject.Thisresearchwasusedasa
basisforanintegrativedefinitionofleadership.WinstonandPatterson(2006)state
“A leader isoneormorepeoplewhoselects,equips, trains,and influencesoneor
more followers(s) who have diverse gifts, abilities, and skills and focuses the
follower(s) to the organization’s mission and objectives causing the follower(s) to
willingly and enthusiastically expend spiritual, emotional, and physical energy in a
concertedcoordinatedefforttoachievetheorganizationalmissionandobjectives”.
InthebookBehaviorinOrganizations-TenthEdition,JeraldGreenberg(2011)gives
a similardefinitionof leadership. Theexplanation cited for the term isone that is
accepted by many experts researching the topic. Greenberg (2011) writes,
“leadership istheprocesswherebyoneindividual influencesothergroupmembers
towardtheattainmentofdefinedgroupororganizationalgoals”.Thedefinitionsare
verysimilar;thedifferenceisthatthefirstonecapturesalldimensionsofthetopic
leadership. For a better understanding of this thesis the second definitionwill be
usedas a referencewhendiscussing theunderlying issuesof the topic leadership.
Nevertheless, theexplanation includingall relevantdimensionsof thewordshould
bekeptinmind.
3.1.2 Characteristics
Therearethreemaincharacteristicswhichcanbeattributedtoleadership.Thefirst
oneisthatleadershipinvolvesnoncoerciveinfluence.Thismeansthatsubordinates
follow their leader, due to the fact that they respect, like, or have admiration for
him/her. The next characteristic is that the influence deriving from leadership is
goal-oriented. Leaders influence their followers to control and direct their actions
towards the achievement of a certain goal. The last characteristic of leadership is
that it requires followers. This statement seems very clear, yet it may need
clarification. What it implies is that leaders have the ability to influence their
followers. The principle also applies in the opposite direction, meaning that
followersinfluencetheirleader(Greenberg,2011).
10
3.1.3 Theories
Thegreatperson theoryassumes that leadersarebornandnotmade.Thismeans
that an individual possesses certain traits that make him/her different to other
individuals.Additionally, thesespecial traitscontributetothereasonwhyaperson
holdsaposition inpower,authority,and leadershiproles.Thespecific traitswhich
thesepeoplehaveareasfollows;leadershipmotivation(meaning,thedesiretobea
leader), flexibility, focus on morality, and multiple domains of intelligence
(Greenberg,2011).
AccordingtoWinstonandPatterson(2006)thereisanothertheory,thetraittheory.
It takes characteristics into account which can be measured, including but not
limitedtogender, race,heightappearance,cognitive factors,psychological factors,
efficacyfactors,andemotionalfactors.
Both,thegreatpersontheoryandthetrait theorysolely focusonthe leaderasan
individual.Itispossiblefortheretobemorethanoneleaderworkingtogetherand
thereforecomprisinga leadership team. In this case the trait theorywould stillbe
applicable.However,itremainsunclearifthegreatpersontheorycanbetransferred
tothemodelofaleadershipteam(Winston&Patterson,2006).
Afurthertheoryisthatofcollectiveleadership.Theleadershiptheoryisalsoknown
assharedordistributedleadership.Collectiveleadershipiscreatedinformallybythe
exchange between a leader and his/her team. The assumption hereby is that
leadershiprolesareallocatedaccordingtotheamountofknowledgeapersonhas.
Leaders are thengiven responsibilities is their areaof expertise (Friedrich,Vessey,
Schuelke,Ruark&Mumford,2011).
3.1.4 BehaviorsParticipativevs.Autocratic
Theautocratic-continuummodeloutlinesthatleadersallowtheirfollowersdifferent
degrees of decision-making power. The range of this power reaches from an
autocratic leadership style, to a participative leadership style and finally to a
delegating leadership style. An autocratic leaderwillmake all the decisions alone,
tell his/her employees exactlywhat to do andmonitor their performance closely.
Theparticipative leaderwill ask forhis/heremployeesopinionsandconsider their
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opinionswhenmakingadecision.Apersonwithadelegatingleadershipstylegives
his/her employees more responsibility and self-initiative to make their own
decisions(Greenberg,2011).
Theautocratic-continuummodelpresentsaverybasiccategorizationofthedifferent
leadership styles. Therefore, scientistshavedeveloped the two-dimensionalmodel
ofsubordinateparticipationtobeabletofurtheraddresstheparticipationofleaders
inthedecisionprocess.Thefirstdimension,calledtheauto-democraticdimension,
showstheextenttowhichaleaderallowshis/heremployeetoactivelycontributeto
a decision. The second dimension, known as the permissive-directive dimension,
shows the extent to which leaders direct and control the work activities of their
employees.Theautocraticextremeismarkedasnoparticipationandthedemocratic
extremeismarkedashighparticipation.Whentheauto-democraticdimensionand
the permissive-directive dimension are put together, there are four possible
outcomestodescribealeader(Greenberg,2011).
Table1:Two-DimensionalModelofSubordinateParticipation
Are subordinates permitted to participate in making
decisions?
Are subordinates told
exactly how to do their
jobs?
Yes(Democratic) No(Autocratic)
Yes(Directive) Directivedemocrat Directiveautocrat
No(Permissive) Permissivedemocrat Permissiveautocrat
ThistableispresentedbyGreenberg(2011)andexplainsthecompositionofthefour
dimensionsinthetwo-dimensionalmodelofsubordinateparticipation.
There is no “ideal” leadership style, as these four styles all have advantages and
disadvantages.Thesuccessofacertainleadershipstyleisdependentonavarietyof
factors, such as the internal and external conditions and challenges in an
organization.Nevertheless,tobeabletoapplythebeststyletoaspecificsituationit
iscrucialtoknowthedifferencesbetweenthefourleadershipstyles.Furthermore,it
12
is vital to be capable of choosing the correct leadership style for a situation and
adoptingitinaneffectiveway(Greenberg,2011).
3.1.5 LeadershipinaCrisis
There are two phaseswhich have to beworked throughwhen leading a business
through a crisis. The executive has to navigate the business and its employees
through theemergencyphaseand theadaptivephase. Thegoal in theemergency
phase is to stabilize the crisis situation and buy as much time as possible. After
achieving those objectives, the adaptive phase commences. In the adaptive phase
theleaderhastomakeadaptivechangestotheorganization,itsstructure,andwork
processes. These changes may be met with pushback from employees, but this
should not hinder the person in charge to lead with authoritative certainty
(Grashow,Heifetz,&Linsky,2009).
When confronted with a crisis the people who hold powerful positions in an
organizationoften“hunkerdown”.Thismeansthat theywilldefault tosolving the
problems of the business by using short-term fixes. These short-term measures
oftenincludetightenedcontrols,across-the-boardcuts,andrestructuringplans.The
problem which leaders are currently facing is that organizations do not have the
abilitytocreatemajorchange.Theresultisthatshort-termadaptationsareusually
insufficient,whichleadstocompaniesnotjustbeingunsuccessfulbutevenhavingto
find themselves fighting for survival after a crisis. There is an even greater risk of
consistent failure if the conclusions drawn from the recovery after a crisis are
incorrect.Theonlywaytoensurethatthisdoesnothappenistopracticeadaptive
leadership.Peoplewhohavetakenonthisleadershipstyledonothunkerdownina
crisis. Instead the crisis situation is used to create a strategic advantage and
importantchangesaremade intheorganization.Theadjustmentswhicharemade
in thecoreof theorganizationandareoften small,buthavea rippleeffectwhich
hasamajorimpactonthewholebusiness.Theapplicationofthisleadershipstyleis
thepossibilitywhichismostlikelytosafeguardandreinventanorganization.Some
areas of an organization will have to be eliminated, as they are not able to
contribute to the survival andultimately to the success of thebusiness (Grashow,
Heifetz,&Linsky,2009).
13
Traditionally the skillswhich are required for effective leadership areproficiencies
like analytical problem solving, crisp decisionmaking, and the articulation of clear
direction.Clearlythesecontinuetobevitalskillswhichaleadershouldpossess.To
be able to lead through a crisis new leadership practices are necessary. These
includefosteringadoption,embracingthedisequilibrium,andgeneratingleadership
(Grashow,Heifetz,&Linsky,2009).
Oneofthegreatestchallengespresentlyfacedbyexecutivesisthattheyhavetobe
capable of applying the best practices today, while simultaneously thinking about
the development of the best practices for the future (Grashow, Heifetz, & Linsky,
2009).
When faced with a crisis it is important to embrace change. This is often very
difficult,becausecertainpracticeshavetobeeliminated.Todothiseffectivelythe
leader has todifferentiatebetweenwhat is essential for thebusiness andwhat is
expendable to the business. In order to build the adaptability of a company,
experiments should be run and theories should be tested. By trying different
practices and using the process of elimination one can then clearly see which
measureswereadvantageousandwhichmeasureswerelessprosperous(Grashow,
Heifetz,&Linsky,2009).
Tostarttheprocessofchangeacertaindegreeofurgencyisneeded.Thismaycause
employeesofthecompanytobelessproductive.Theleaderhastomanagethezone
of disequilibrium carefully. If the exerted pressure from the leadership of an
organizationistoolow,employee'sproductivitywillbelow.Ifthepressureputforth
fromtheleadershipofanorganizationistoohigh,employeeswillstarttopanicand
hunker down. To balance the disequilibrium at the right level a leader should
depersonalize the conflict. The goal hereby is to center the disagreement on the
issuesathand,insteadoftheinvolvedparties.Itisimportanttorememberthatthe
issues are predominantly connected to people’s core competencies, loyalties and
directstakes.Thisiswhyitisimperativetolookbeyondtheissueandactpolitically
as well as analytically whilst demonstrating emotional intelligence. In the time of
change every matter has to be discussed and analyzed, especially the difficult
subjects.Moreover, it isanadvantageifasmanypeopleaspossiblespeakup.This
14
creates an open environment where different points of view can be contrasted
(Grashow,Heifetz,&Linsky,2009).
To achieve corporate adaptability many small adaptations, have to be made
throughouttheorganizationandthedifferentenvironmentswithin.Theadaptations
aremadebyemployeesoftheorganizationiftheyarerecognized,empowered,and
feel acknowledged for their actionsby their leaders. This ishow leadersempower
their employees which in turn develops the employees into leaders of their own
microenvironment in the business. By distributing the leadership responsibility
executiveshavemoretimetofocusonthenextchallengesconcerningthebusiness.
Another benefit is that employees are encouraged to solve problems,make their
own decisions and share their know-how with colleagues. To ensure the
maximization of innovative ideas and the new leadership generation a diverse
workforce isof theutmost importance.Diversitywithinanorganization fosters an
enrichedworkenvironment(Grashow,Heifetz,&Linsky,2009).
In a crisis an executive should not lead authoritatively and he/she should be
optimisticaswellasrealisticaboutthepotentialoutcomesthebusinesscouldface
afterthecrisis(Grashow,Heifetz,&Linsky,2009).
3.2 Management
3.2.1 Definition
Management is a necessity in every organization, no matter the size. It is what
makesabusinessoperate smoothlyand thereforemangersareessential (Drucker,
1974).
3.3 TypesofManagement
There are different levels of management, based on hierarchy, scope of
responsibility,andtypeoffunctioninanorganization.Thevariousconceptsaretop-
level management, middle-level management, frontline management, functional
management, generalmanagement, andmanagementof for-profit, non-profit and
mutual-benefitbusinesses(Boundless,n.d.).
15
3.3.1 Top-levelManagement
Senior managers have the obligation to control the overall business. It is their
responsibility to form corporate goals, a business strategy and company policies.
These tasks determine the direction and ultimately the success or failure of a
business.Additionally, top-levelmanagershave toanswer to shareholdersandare
accountable to all stakeholders involved with their business (Bantel & Jackson,
1989).
Itisvitalthatapersonholdingsuchanimpactfulpositionhasthecorrectexpertise,
experience, and skills. Usually every department of a business (such as, finance,
operations,marketing,etc.)hasamanagerwhosolelyfocusesonmakingtheirarea
of the organization as efficient as possible and producing the best results for the
specificdepartment(Bantel&Jackson,1989).
3.3.2 Middle-levelManagement
Amid-levelmanager answers to a seniormanager and supervises the operational
staff in his/her department. The responsibilities of a mid-level manager primarily
includetheexecutionoforganizationalplansmadebyseniormanagement.Another
important function is the provision of data and information so the high-level
employees can create attainable strategies and goals for a company (Floyd &
Wooldridge,1992).
3.3.3 FrontlineManagement
Frontline managers are in the first level of management and are in charge of
organizationalwork groups. They are at the lower spectrum of the hierarchy, but
neverthelessveryimportantastheyareresponsibleforproductionoversight.Their
contributioniscriticaltothecompany'ssuccess,becausethefrontlinemanagerhas
toensureefficientproductionprocesseswhile tryingtokeeptheoperationalcosts
ataminimum.Interpersonalskillsareoftheutmostimportanceduetothefactthat
thispositionrequires themotivation,supervision,guidanceofsubordinates (Singh,
2000).
16
3.3.4 FunctionalManagement
Theroleofafunctionalmanageristomakesurethatorganizationalobjectivesarein
linewithacompany'svisionandstrategy.He/sheistheheadofadepartmentinthe
business, but is not as involved in operational processes. It is more common to
employ functional managers in large businesses where there are many different
departments.TheFunctionalManagershouldbeanexpertandhaveexperience in
thedepartmenthe/sheoversees(Pavett&Lau,1983).
3.3.5 GeneralManagement
GeneralManagers (“GM”) areusually employed in small- andmediumbusinesses.
Theyareresponsibleforalldepartmentsinthecompany.ThetasksofaGMinclude,
butarenotlimitedtothemanagementofday-to-dayoperations,andmanagement
andforecastingofresources.ItiscrucialthataGeneralManagerhasadiversesetof
skills and extensive knowledge of the different business areas to be able to run a
companysuccessfully(Pavett&Lau,1983).
3.3.6 ManagementinFor-profitOrganizations
For-profit companies operate with the goal to earn a profit and therefore create
wealth and increase the company value. To achieve this goal, businesses produce
and sell products or services to their customers. Employees are motivated by
monetarycompensations,likesalariesandbonuses(Moore,2000).
3.3.7 ManagementinNonprofitOrganizations
Non-profit organizations are created with the goal to support a charitable or
educationalpurpose.Itisprohibitedtomakeaprofitfortheownerofthebusiness.
Mostpeopleworkingatsuchorganizationsarevolunteers,astheyarenotpaid.The
managementofthevolunteersdifferscomparedtothemanagementofemployees.
As there is no monetary motivation to work, the managers of nonprofit
organizationshavetomotivatethembyleveragingthesatisfactionofacontributing
toagreaterpurpose(Moore,2000).
17
3.3.8 Mutual-benefitOrganizations
Amutual-benefitorganization isusuallyanon-profitorganizationand isownedby
the members. The goal is not to make profit, but to achieve a benefit for the
members who own the company. Therefore, the business is not accountable to
shareholders,andrather focusedonthebenefit itprovides to itsmembersand/or
the environment. In this type of business, the employees are motivated because
theirinterestsarelinkedtotheorganizationalpurpose(O’Neill,1994).
3.4 Leadershipvs.Management
The two terms leadership and management are often used interchangeably, but
they have distinct differences (Greenberg, 2011). The definitions and theories
concerning both terms were analyzed extensively in the previous section of the
thesis. To illustrate the distinction between these phrases oncemore theywill be
contrastedtoeachother.
Aleaderisapersonwhohasavisionwhichgoestowardsattainingagoalorfulfilling
thepurposeand the strategyof anorganizationwhich canbeused toobtain that
goal. Incomparisonamanager isapersonwho implementssaidvision. Inpractice
the leader chooses a direction for the future of a company. The manager then
creates a plan and monitors the results gained from implementing the plan to
eventuallycarrytheleader'svisionintoeffect(Greenberg,2011).
In realityexecutivesoftendon’t simplyactas leaders, focusingon thevision.They
alsomake a plan detailing the strategy on how to implement the vision. For this
reason, there is often confusion about the differences between the two distinct
terms.It isgenerallythecasethataleaderisalsoamanager,butnotallmanagers
areleaders(Greenberg,2011).
3.5 CorporateSocialResponsibility
3.5.1 Definition
As for the terms discussed in this thesis already, Corporate Social Responsibility
(“CSR”)hasbeendefinedbymanyresearchersindifferentways.Theconsistencyis
18
that thedefinitions refer to fivedimensionswhichare imperativewhendiscussing
CSR,namely:
1. theenvironmentaldimension(thenaturalenvironment),
2. thesocialdimension(therelationshipbetweenbusinessandsociety),
3. the economic dimension (socio-economic or financial aspects, including
describingCSRintermsofabusinessoperation),
4. thestakeholderdimension(stakeholderstostakeholdergroups),and
5. the voluntariness dimension (actions not prescribed by law) (Dahlsrud,
2008).
Theimplicationisthatthesefivedimensionsareaffectedbyabusinessandshould
be taken into consideration when creating a business strategy to secure the
protectionofthem(Dahlsrud,2008).
Dahlsrud(2008)states that it isnotas important tohaveacleardefinitionofCSR,
ratherthanunderstandhowtotakeCSRintoaccountwhendevelopingstrategiesfor
aspecificbusiness.
4 TheFinancialCrisis
As stated previously there were many different factors which contributed to the
financialcrisisin2008.
Many American politicians, such as Senator Bernie Sanders and Senator Elizabeth
Warren claim that the repeal of the Glass-Steagall act in 1999 during the Clinton
administrationwas the first step towards destabilizing banking system. TheGlass-
Steagallactwaspassed in1933under theRooseveltadministration in response to
theGreatDepression.Itforcedbankstoseparatecommercialfromprivatebanking,
whichmeansthatbankswererestrictedfromusingdepositors’moneyforhigh-risk
investments.Therepealof theGlass-Steagallactenabledbanks, suchasCitigroup,
LehmanBrothersandBankofAmericatogrowsubstantially.Repealingthisactwas
certainly not the only reason for the crisis, but it clearly contributed to the
devastatingoutcome(Irwin,2015).
19
Before the shock of the financial crisis there was consistent growth in the UK
economyinthepreviouseightyears.Thistimeframewasknownforareductionin
themacroeconomicvolatility andwas called “TheGreatModeration”. During this
period the global banking sector became more and more vulnerable (House of
Commons,2009).
IntheUSsubprimemortgagesweregivenouttolenders,whowereatahighriskof
defaultingon those loans.The issuewas that thehigh-risk loansweregiven tobig
bankswhopooledthemandclassifiedthemaslow-risksecurities.Thepooledloans
were further used as collateralized debt obligations (“CDOs”) and divided into
tranchesdependingontheirriskofdefault.Thetrancheswereratedbycredit-rating
agencies, like Standard & Poor’s and Moody’s. These credit-rating agencies were
paid by the banks and gave the tranches high (usually AAA ratings) and therefore
betterratingsthantheyshouldhave(TheEconomist,2013).
The issues which were pointed out were large capital disparities and consistently
growing deficits in western countries like the US and the UK. Additionally, there
were surpluses inAsianmarkets. This lead to imbalances in capital flowsbetween
different countries which had the effect of banks offering low interest rates. The
imbalancesincapitalflowbetweendifferentcountrieswerepossibleduetothefact
that Asian economies were growing quickly and entering the market, thereby
creatingasurplus.Concurrentlywiththisthepoliciesintheindustrialworldensured
a certain level of demand to create a stabilized inflation rate. The combination of
thesetwofactorscausedlowinterestratesindevelopedcountries.Thedemandfor
assets increasedas theywereofferinghigher returns. Thismeant thatmoneywas
beinglentonlooseconditionswhichincreasedtoassetvaluesandpricesevenmore
(HouseofCommons,2009).
Lowinterestratesfurthercausedthewillingnesstotakehighrisks,whichwascalled
the “search for yield”.Many banks, but especially US and UK banking institutions
took advantage of these conditions to increase their gains (House of Commons,
2009).
DuringthetimewheninterestrateswerelowinvestorsboughttranchesofCDOsas
theyappearedtobesafeandhigh-returninvestments.Thelowinterestratesdidnot
20
solely influence investors, but also banks and hedge funds. All institutions in the
finance industry were incentivized to invest into high-risk assets to gain higher
returns.When the American housingmarket crashed a chain reactionwas set off
andfrailtyofthefinancialindustrybecameapparent(TheEconomist,2013).
Manypeoplehadnotrealizedtheextentofdamagethisschemecouldcausetothe
global financialmarketsuntil the collapseof LehmanBrothers in September2008.
Duetotheconnectionsbetweenthe internationalbanking institutionsthecrashof
Lehman Brothers caused a chain reaction in the industry and banks which were
followingthesamestrategywereinastateofcrisis(HouseofCommons,2009).
4.1 CausesandConsequences
Theprimarycausewhich lead to thecrisiswas theculture fostered in thebanking
industry of always trying to get the easy reward. The CEOs managing the banks
decidedtotakethepathofleastresistance,nomattertheriskassociatedwiththat
strategy.Furthermore, theydidnotconsider theconsequenceswhichwouldresult
fromthoserisks.Asaresultofthisthemajorityofthebankinginstitutionswerenot
prepared for a crisis situation, failed to have appropriate risk management
approaches in place, and this fundamental weakness exposed all their
vulnerabilities.Theconsequenceswerethatmanymajorbankshadtobebailedout
bytheirgovernments(HouseofCommons,2009).
The devastating crash can be traced back to the leadership in the banks and the
fragilityoftheglobalbankingsystem.CEOsacted irresponsiblyandcertainlynot in
thebestinterestoftheirshareholders.Thisbehaviorwasperpetuatedbythebonus
culture which has been fostered by the banking industry. Senior managers are
incentivized to deliver exceptional results, but only in respect to short-term goals
(like the next quarter). In addition to that, the lack in oversight by the Board of
directors only perpetuated the problem. As a consequence, there was a high
turnoverinmanagementpositionsafterthecrisishit.CEOswithmoreconservative
business strategies were put into place. Regarding the Boards, oversight and
monitoringof seniormanagementbecamemore important.Corporategovernance
principleswerereviewedandamendedtotaketherisksofthefinancialindustryinto
account(HouseofCommons,2009).
21
AnothercauseofthefinancialcrisiswasthatthebankingsystemintheUShasslowly
but steadilybeenderegulatedover timeand the international banking regulations
whichwere inplacewere insufficient.They left toomuch leeway for thebanks to
exploit the economic situation during that time. As a result of the crisis the Basel
Committee on Banking Supervision published new rules and regulations for the
globalfinancialsector.Theregulationsfocusspecificallyonriskmanagementinthe
industry(HouseofCommons,2009).Inaddition,theEU
In the EU the financial market consists of three different areas, namely banking,
security and insurance, andpost-trading activities. After the financial crisis the EU
introducednewregulations inbanking,securitymarkets,accountingstandardsand
theframeworkwhichwasputintoplacetoensureregulationandsupervisioninthe
financialsector(Quaglia,2012).
While many CEOs of the large banks were removed from their positions, and
receivedlargeseverancepackages,millionsofpeoplelosttheirhomesandtheirjobs
due to the actions of the bankers. The consequence the crisis had on these
individuals and society as a whole often passes without critical analysis by
commentators.Nevertheless,itstartedadiscussionamongthegeneralpublicabout
corporate social responsibility. Corporations do not just have a responsibility to
ensure they deliver their shareholders the highest return on investment (“ROI”)
possible. They also should be aware of their responsibilities to the other
stakeholders involved, particular their customers and the wider communities in
whichtheyoperate.
5 BankingRegulations
5.1 BaselCommitteeonBankingSupervision
TheCommittee onBankingRegulations and Supervisory Practiceswas foundedby
thecentralbankgovernorsoftheG10countriesin1974.Lateronitwasrenamedto
the Basel Committee on Banking Supervision. The Basel Committee was founded
after the breakdown of the Bretton Woods system of managed exchange rates,
whenmany banks had to dealwith losses in foreign currencies. The Committee's’
primary purpose was to create an exchange between banking institutions of the
22
member countries about supervisory matters in the banking industry. The Basel
Committee on Banking Supervision has the aim to increase the understanding of
important supervisory issues and enhance the quality and effectiveness of
supervision in the global banking sector. To attain this goal, the Committee sets
standards for banking regulation and supervision. The cross-border information
exchange in thebankingsectorassists indeterminingrisks for the financial system
and increases the know-how concerning these problems in the industry (Bank for
InternationalSettlements,2015).
The members of the Basel Committee come from Argentina, Australia, Belgium,
Brazil, Canada, China, European Union, France, Germany, Hong Kong SAR, India,
Indonesia, Italy, Japan,Korea, Luxembourg,Mexico, theNetherlands,Russia,Saudi
Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United
KingdomandtheUnitedStates(BankforInternationalSettlements,n.d.).
The presiding chairman of the Basel Committee is Stefan Ingves. The Group of
GovernorsandHeadsofSupervision(GHOS)isconsultedbytheBaselCommitteeon
crucialdecisionandiswheretheCommitteehastoreportto(BankforInternational
Settlements,2015).
5.2 BaselI
In1988 theBaselAccord (Basel I/1988Accord)wasapprovedby thegovernorsof
the G10 and released to banks around to world. It was a capital measurement
systemwhichwasputintoplacetostabilizethebankingsystem.Theobjectivewas
to eliminate a source of competitive inequality coming from the differences in
capital requirements which each country had (Bank for International Settlements,
2015).
5.3 BaselII
InJune2004ThecommitteepublishedtheRevisedCapitalFramework(BaselII).The
newframeworkwasanadaptationofBaselItothechangesandnewriskswhichhad
developedinthefinancialmarkets.Itwasbuiltonthreepillars,whichwere:
23
1. “minimum capital requirements,which sought to develop and expand the
standardizedrulessetoutinthe1988Accord;
2. supervisory review of an institution’s capital adequacy and internal
assessmentprocess;and
3. effective use of disclosure as a level to strengthen market discipline and
encourage sound banking practices” (Bank for International Settlements,
2015).
5.4 BaselIII
Before thedevastating collapseof LehmanBrothers in 2008 it hadbeen apparent
that itwasnecessary toputanadditional setof regulatorymeasures intoplace to
deal with the risk management in banking. In response to this the committee
published“Principlesforsoundliquidityriskmanagementandsupervision”(Bankfor
InternationalSettlements,2015).
In December 2010 a new set of measures were put into place by the Basel
Committee to reform banking supervision, strengthen the existing regulation, and
monitor the risk management in the banking sector more closely. The measures
formedtoachievetheaimareto:
1. “improvethebankingsector’sabilitytoabsorbshocksarisingfromfinancial
andeconomicstress,whateverthesource,
2. improvetheriskmanagementandgovernance,and
3. strengthen banks transparency and disclosures” (Bank for International
Settlements,2015).
Thesemeasureswerespecificallyidentifiedtosolveissueswithbank-level,ormicro
prudentialregulationandmacroprudentialsystemwiderisks.Ifthesepointswould
not havebeen addressed therewould havebeen and stillwould be a high risk of
banksfailinginperiodsofeconomicstress.Additionally,therewouldbeavarietyof
risks within the banking systemwhich keep building up over time. Themeasures
determined by the Basel Committee will ensure a reduced risk of system wide
shockstothebankingindustry(BankforInternationalSettlements,2015).
24
TherehavebeentwoversionspriorBaselIII(BaselIandBaselII),butastimegoeson
change is inevitable in the financial sector and therefore it is essential for the
Committee to keep adjusting and amending the global banking regulations to
protecttheindustryfromnewchallengesandrisks.
While someorganizationshaveacceptedapositiveattitude towards reform in the
financialsectorothersremainaversetochange.Financialorganizationwhicharefor
change are less connected with others in the market, while on the other hand
businesseswhoareagainstchangeareinterconnectedbylobbyingnetworks(James
& Christopoulos, 2015). This creates a disincentive for connected organizations to
push for change in the regulatory system and rather try to maintain the current
statusoftheindustry.
6 Methodology
6.1 Approach
Thepurposeofthiscasestudyistoexaminetheleadership,andmanagementstyle
duringandafterthefinancialcrisisin2008oftwolargebanksintheUK.Thebanks
whichwerechosenforthiscasestudyareRBSandHSBC.Theaimistoclearlyoutline
whichdecisionsinleadershipandmanagementledtotheoutcomewhereonebank
hadtobebailed-outbythegovernmentandtheotherwasabletosurvivethecrisis
withoutgovernmentalsupport.
Inorderfocusthethesis,thefollowingtworesearchquestionswereformulated:
1. What impact did the financial crisis in 2008 have on the leadership and
managementstyleoftheCEOsandtheboardofdirectors?
2. What differentiated the leadership andmanagement style of bankswhich
were better equipped to deal with the oncoming crisis from banks which
werepoorlyequippedtodealwiththecrisisandthereforecrashed?
For thepurposeof thispaperaqualitative researchapproach isused topresenta
clear picture of the situation during the time of crisis. In order to exhibit a
25
comprehensive overview of the topic primary and secondary data is analyzed.
Furthermore,acasestudywasconductedaswellasin-depthinterviews.
First the general theories and constructs of leadership and management are
explained and outlined to give a better understanding of these topics. Then the
phenomenonofthefinancialcrisisandthecausesandconsequencessurroundingit
are discussed. The primary part of the paper was aimed at providing a basic
understandingofthetopicandconveyingcrucialinformationaboutthestateofthe
bankingindustryduringtheanalyzedtimeframe(thefinancialcrisisin2008).
InthecasestudytwolargeUKbanks,namelyRBSandHSBC,areanalyzedwiththe
goal to determine the effectiveness of their management and leadership styles.
First,eachbank isdescribed inabriefprofile.Thisshowsthat thecompetitorsare
similar in size, structure, and business profile which makes them comparable.
Additionally,thisdemonstratesthattheycanbeseenasrepresentativesfortheUK
banking industry, and more specifically for large UK banks who share similar
characteristics.
To gain further in-depth knowledge of the perceptions of leadership and
managementduringthetimeofcrisis, interviewswithsenioremployeesfromboth
RBS and HSBC were conducted. The interview participants were employed at the
banksatthetimeofthecrisisand/orduringtherecessionafterthecrisiswhichgives
them a unique and close perspective of the on goings during the analyzed
timeframe. The interviews were conducted in person and had open ended
questions.Everyparticipanthadtheopportunitytoanswerthesamesixquestions.
The interviewquestionswere designed to better understand the actions taken by
RBSandHSBCinthewakeofthefinancialcrisis.Thefirstquestionisinregardtothe
perception of the CEO’s during the crisis. The next two questions are about the
impactoftheBoardofDirectors’ontheCEO’smanagementstyleandtowhatextent
their interventioninfluencedtheoutcomeofthecrisisforeachbank.Furthermore,
theintervieweeswereaskedaboutthelessonswhichwerelearnedandthecurrent
visibilityofchangesresultingfromthatlearningcurve.Thenextquestionfocuseson
the extent to which the leadership of each bank contributed to their ultimate
survival. Lastly the participantswere asked to outline the differences of the bank
theywereemployedattotheotherbankwhichisanalyzedinthecasestudy,and/or
26
other banks in theUK sector. The answers givenby the interviewparticipants are
contrastedandcomparedtoeachotherinanarrativeanalysistofindoutifthereis
consistency in their opinions. The findings are then summarized and presented to
concludethecasestudy.
Finally, conclusions are drawn from the combined analysis of the theory and the
outcomeofthecasestudy.
7 CaseStudy
7.1 RoyalBankofScotlandGroupPLC–BankProfile
TheRoyal Bank of ScotlandGroup is aUK-centeredpublic limited companywhich
provides banking and financial services to customers worldwide. The bank was
foundedin1727andisheadquarteredinEdinburgh,Scotland(UnitedKingdom).As
aninternationalplayerinthefinancialservicessectorRBSisrepresentedacrossthe
globe,inEurope,Asia,theMiddleEastandNorthAmerica(RBS,2015).
7.1.1 CorporateGovernance
Royal Bankof Scotland ismanagedby a structured frameworkof different boards
and committees. At the head of this structure is the group board which is
responsibleformakingdecisionsabouttheleadershipandcontrolofthecompany.
Furthermore, the board determines the strategy for the group and each of its
separate brands. A formal schedule of matters has been put into place which is
reviewedattheannualboarddiscussion(RBS,2015).
7.1.2 ChiefExecutiveOfficer
The current chief executive officer of RBS is RossMcEwanwhowas appointed in
October 2013. RossMcEwan has over 25 years of experience in the banking and
finance industry.Hehasworkedas theCEOofNationalMutual LifeAssociationof
Australasia Ltd/AXA New Zealand Ltd., managing director of First NZ Capital
Securities and executive general manager at Commonwealth Bank of Australia
beforestartingatRBSinAugust2012(RBS,2015).
27
7.1.3 TheBoardofDirectors
The presiding chairman of the board is Howard Davies. The group board is the
highestauthorityatthebankandthereforeresponsibleforthelong-termsuccessof
RBSand the returns for theshareholders.Theprimaryobjectiveof theboard is to
“provide leadership of RBS within a framework of prudent and effective controls
whichenablesrisktobeassessedandmanaged”(RBS,2015).
The hierarchy continues with a number of committees, which are responsible for
different areas of banking. Nevertheless, it is their main objective to advise the
boardtoensurethebank'ssuccess.Thesecommitteesoverseethefollowingareas;
audit, risk, performance and remuneration, nominations, sustainable banking,
capital resolution board oversight, executive, corporate and institutional banking
board oversight, compliance statement and remuneration policy, auditor
independence(RBS,2015).
7.1.4 Values
At the coreof thebank's values is thekey conceptofwanting to serve customers
well.Additionally,theirvaluesincludeimportantcharacteristics,suchasteamwork,
doingtherightthingandalwaysthinkingintermsofthefuture(RBS,2015).
7.1.5 Brands
RBShasadiverserangeofbrandsincludingNatWest,RoyalBankofScotland,Ulster
Bank,Coutts,Adam&Company,Child&Co.,Drummonds,Holt’s,IsleofManBank,
LombardandRBSInternational(RBS,2015).
In2014thecompanyrecognizedthattheywouldbemoresuccessfuliftheyshifted
their focus back to their original core competencies and core markets. For this
reason,manyoftheirinternationalbrandsweresold(RBS,2015).
7.1.6 Products
RBS offers its financial services to private, corporate, as well as international
customers.
28
Thediverse rangeofproductsoffered to customers includebut arenot limited to
current accounts, credit cards, savings accounts, investments, loans, overdrafts,
mortgages,homeinsurance,lifeinsurance,andcarinsurance(RBS,2015).
7.1.7 Mission
RBShaspositioneditselftobemorefocusedontheUKandIrelandbankingmarket
with themission to become stronger, simpler, and fairer. The bank further states
that they want to be known as the number one bank in the areas of customer
service, trust, advocacy, business efficiency, commitment to supporting enterprise
and economic growth, and investments in new technologies and processes. For a
better understanding of the most important concepts, the keywords stronger,
simpler and fairer are further divided into sections. Stronger means focusing on
reducingrisk,buildingcapital,thebalancesheetandinvestingintechnology.Simpler
refers to all aspects related to easing the banking experience for their customers.
The last keyword in the bank's mission statement is fairer, which refers to their
responsibilitytoactinthebestinterestoftheircustomers(RBS,2015).
Figure1:RBSEarning/losspershare(GBP)
Thegraphaboveshowstheearnings/lossperRBSshareinGBPfrom2005to2010.
This clearlydemonstrateshow steep the losswas in from2007 to2008when the
-1
-0.5
0
0.5
1
1.5
2
2005 2006 2007 2008 2009 2010
RBSEarning/losspershare(GBP)
29
financial crisis started in the US and made its way into the financial markets in
Europe.
Figure2:RBSIndustryrisk2008-geographicalanalysis
ThispiechartshowstheriskinthegeographicalareasRBSwasoperatingin.AsaUK
centeredbankmorethanhalfoftheriskwasgeographicallyintheUK.Nevertheless,
a substantial amountwas in theUSwhich iswhy the RBS had started to feel the
effectsofthecrisisbeforeithadexpandedintotheEuropeanfinancialmarkets.
7.2 Hong Kong and Shaghai Banking Corporation Holdings PLC –
BankProfile
HSBC is an international bank which was founded in March 1865, in Hong Kong,
China.TodaythebankhasitsheadquartersinLondon,UnitedKingdom.Itoperates
in more than 71 countries and territories around the world and serves over 47
million customers. HSBCwas able to survive and consistently be successful in the
past150yearsduetotheirwillingnesstoadapttothechallengeswhicharoseinthe
financial sector over this time, including revolutions, economic crises and the
immersionofnewtechnologies(HSBCGroup,2016).
52.63%
12.90%
28.66%
5.80%
RBSIndustryrisk2008
UK US Europe RestoftheWorld
30
7.2.1 CorporateGovernance
HSBChasputavarietyofpoliciesandsystemsintoplacetomakesurethatthereis
effective oversight and control within the bank and to avoid mismanagement
occurring on any level. The Group has high standards for corporate governance
which is clearly outlined in their corporate governance codes. These corporate
governance codes expand on the codes provided by the UK Financial Reporting
CouncilandtheStockExchangeofHongKong.Allseniorfinancialofficersareheldto
thehigheststandardsatHSBCandmustcomplywiththecompany’scodeofconduct
which is basedon theprinciples of governinghonestly andethically (HSBCGroup,
2016).
HSBCismanagedbyaChiefExecutive.Furthermore,theleadershipisstructuredinto
different board committees which consist of different directors and non-director
members. The hierarchy continueswith the directorswho are responsible for the
internalcontrolofthebank.Theyhavethetaskofanalyzingtheeffectivenessofthe
differentareaswithinthebank(HSBCGroup,2016).
7.2.2 ChiefExecutiveOfficer
StuartGulliverwasappointed to thepositionofCEOofHSBC in January2011and
currently stillholds thisposition.He startedworking for thebank in1980andhas
held a variety of vital positions in the company since that time. These positions
include serving as the chairman on different boards responsible for internal
oversightatHSBC(HSBCGroup,2016).
7.2.3 TheBoardofDirectors
Thepresidingchairmanoftheboard isDouglasFlint.Mr.FlinthasbeenwithHSBC
since1995andwas appointed tohis currentposition as chairmanof theboard in
December 2010. The chairman is not only responsible for the leadership of the
board,butalsomanagestheperformanceoftheCEO.Furtherresponsibilitiesofthe
boardofdirectorsinclude:
• theoverallmanagementandmonitoringofHSBC,
• maintaining relationships with various regulators, the government, and
investors,
31
• ensuring cooperation between non-executive directors and members of
seniormanagement,
• ensuringthegoodimageandreputationofHSBCisupheld,
• ensuringasustainableandlong-termgrowthofthebank,and
• ensuringtheeffectivenessofHSBC’sleadership(HSBCGroup,2016).
7.2.4 Values
ThevaluesonwhichHSBC isbuiltonarebeingdependable,beingopenmindedto
new ideas and cultures, and being connected to all stakeholders involved in their
business.
Being dependable includes delivering on their commitment to customers, being a
trustworthybusiness,andbeingaccountableforactionsmadebythebank.Bybeing
openmindedtonewideasandculturesHSBCwantstoaffirmthattheyareinclusive
and value different viewpoints. Furthermore, the group states the importance of
caringaboutallstakeholderswhichareimpactedbytheirbusinessandreiteratesthe
importanceofbeingawareofexternalissueswhichcanimpactthebusinessofHSBC
(HSBCGroup,2016).
7.2.5 Brand
HSBC operates a vast amount of subsidiaries in Europe, Asia, Middle East, North
Africa, North America, and Latin America. All of these subsidiaries operate solely
undertheHSBCbrandname(HSBCGroup,2016).
7.2.6 Products
HSBCoffersavarietyofproductstoitscustomers,suchascurrentaccounts,savings
accounts,creditcards, loans,mortgages,overdrafts, stocksandshares, investment
funds,homeinsurance,andtravelinsurance.
7.2.7 Mission
HSBChasthegoaltobecometheworld’sleadingandmostrespectedinternational
bank. Theyposition themselves inmarkets andeconomieswhich still have a large
growthpotential.Thestrategytoensuretherealizationof theirgoalandthe long-
term success of thebank includes two crucial points; building a global networkof
32
businesses and the provision ofwealthmanagement for all the different types of
customers. More specific HSBC focus lies on capturing market share in emerging
marketsandgainingcustomersfromthegrowingmiddleclasswithinthesemarkets
(HSBCGroup,2016).
Figure3:HSBCEarning/losspershare(USD)
The graph above shows the earnings per HSBC share in USD from 2005 to 2010.
Thereisasteadydeclinefrom2007to2008whichwascausedbytheeffectsofthe
financial crisis. From 2008 to 2009 the earnings become even less due to the
aftermathofthisevent.Afterthatthetrendlinerecoversandtheearningspershare
starttoincrease.
-1
-0.5
0
0.5
1
1.5
2
2005 2006 2007 2008 2009 2010
HSBCEarningspershare(USD)
33
Figure4:HSBCTotalAssets2008
ThispiechartdemonstratesthegeographicaldivisionofHSBCstotalassetsin2008.
ItshowsthatmorethanhalfofthetotalassetsareinEurope.Theremainingassets
aredividedamongtheothergeographicalregions inwhichHSBCoperates,namely
HongKong,Asia-Pacificarea,NorthAmerica,andLatinAmerica.
8 DataAnalysis
8.1 Participants
The interviewsconductedhadtwoparticipants fromRoyalBankofScotlandGroup
plcandtwoparticipantsfromHongkongandShanghaiBankingCorporationHoldings
PLC.Allfourparticipantsareemployeesinseniormanagementandwereworkingfor
the previously mentioned banks during the analyzed timeframe. The interviewed
employees were working in different areas within the banks, namely corporate
banking, investmentbanking,and internationalbanking.Thismakesthemqualified
tosharetheirexpertiseandtheiruniqueviewsontheleadershipandmanagement
aspectsofRBSandHSBC.
53.10%
16.10%
10.40%
21.90%
3.90%
HSBCTotalAssets2008
Europe HongKong RestofAsia-Pacific NorthAmerica LatinAmerica
34
8.2 InterviewDesign
The interview consisted of the same six questions which were given to all
participants.Theinterviewswereconductedinperson.
Thefollowingquestionswereaskedandansweredinthecourseoftheinterviews:
1. How would you describe the corporate behavior and personality of Fred
Goodwin(RBS)/MichaelGeoghegan(HSBC)atthetimeoftheglobalfinancial
crisisin2008?Washealeader*oramanager*?
*Definition Leader: Envisions and articulates the purpose ormission of an
organizationandthestrategyforattainingit.
*Definition Manager: Oversees the implementation of the purpose or
missionofanorganization.
2. HowdidtheBoardofDirectors'responsetotheglobalfinancialcrisisimpact
themanagementstyleoftheCEOatRBS/HSBC?
3. To what extent did the Board's intervention during the financial crisis
influence the outcome for RBS/HSBC? (and the bank's eventual bailout by
thegovernment/nobailout)
4. What were the crucial lessons from the financial crisis, and the resulting
changes in leadership, management practices and corporate governance?
How are they visible in the behaviors of the current management and
leadershipofRBS/HSBC?
5. TowhatextentdidtheleadershipoftheCEOandthegovernancepractices
of the Board ultimately contribute to the survival of RBS/HSBC? (requiring
governmentsupport)
6. WhatdifferentiatedtheleadershipandmanagementstyleofRBS/HSBCfrom
thatofbankswhichdidnotrequireabailout(likeHSBC/RBS)?
8.3 RBSInterviewSummary
FredGoodwinisdescribedasanauthoritarianleaderwhowasnotopento,anddid
not value input from others. Goodwinmanaged RBS in his ownway to fulfill the
visionhehadforthecompany.Hisgoalwastoachieveasmuchgrowthasquicklyas
possible.Ahighgrowthstrategylikethatisalwayslinkedtohighrisks.Furthermore,
both interviewees stated that nobody, from senior management was willing to
35
challengethe formerCEOofRBSonthebusinessstrategyoranyother issues.The
problemthatarisesfrommaintainingastrictlyauthoritarianleadershipstyleisthat
onepersonhasallthepower.Additionally,tohavingthefulldecisionpower,other
employeeswerereluctanttocriticizeGoodwin.This leadershipbehaviorfostereda
destructive corporate environment where Goodwin was able to bully senior
managementandeventheBoard into lettinghimtakegreatriskswhichultimately
ledtothedownfallofRBS.
When the financial crisis hit the UK banking sector immediate changes had to be
made at RBS. The composition of the Boardwas changed and Fred Goodwinwas
relievedof his position as CEO. StephenHesterwas appointed as thenewCEOof
RBS. It was Hester's goal to change the high-risk strategy which RBS had been
following the past years and achieve sustainable growth by imploring a more
conservative strategy. Hester also concentrated on fixing the problems the bank
had,tobeabletoreturntoprofitability.Unfortunately,thesechangeshappenedtoo
lateand itwasnotpossible toundo the financialdamagewhichhadalreadybeen
done to RBS. The government immediately had to step in and bail out the bank,
whichwould have failed otherwise and caused evenmore damage to the already
veryunstableUKbankingsystem.
Due to the fact that the leadership of RBS had failed in preparing for a
destabilizationofthebankingsectorandtheresultingcrisis,thegovernmentbailed
out thebank. The answers givenby theparticipants abouthow the impact of the
Board’sinterventioninfluencedtheoutcomeforRBSslightlydifferfromeachother.
The first viewpoint is that the Board actively sought out the support of the
governmentandtheBankofEngland.TheotheranswerreflectsthattheBoardhad
amore passive role in thismatter. The explanation for this is that RBS had been
mismanaged to suchadevastatingextent, that the responsibility for thebankwas
taken away from the Board and given to the government. This minor difference
between the two answers may be unfortunate wording, yet the second answer
impliesthattherewasahighdegreeofdistrustintheBoardtosolvetheproblems
whichRBSwasfacing.
Theresultofthefinancialcrisiswasasteeplearningcurveforleadersandmanagers
inbanking.Thevitallessonswere:
36
• havegoodbankoversightandcontrol,
• sticktothecorebusinesses,
• ensuringenoughcapitaltodealwithfinancialshocks,
• soundassetquality,
• minimalassetconcentrations,
• ensuringenoughliquidityandahighdiversityoffundingsources,
• having a clear strategywhich is built on goodbusiness judgment, detailed
analysesandforecasts,
• employingaCEOwhoiswillingtofacethechallengeandisopentodifferent
opinions,and
• installing a Boardwho is not afraid to challenge the CEO and can lead by
showinggoodcorporategovernance.
TheanswertowhatextenttheleadershipbytheCEOandtheBoardcontributedto
thesurvivalofRBS is “at the timeof thecrisis,notatall” (InterviewB,2016).The
governance practices of the new Board were responsible for stabilizing RBS.
Nevertheless,thesolereasonforsurvivalwasthebail-outbythegovernment.The
other interview participant concurs with this and further stated that, the new
management board showed a clear vision and strategywhich in turn empowered
employees. This is how it was possible to reach the newly set goals which were
necessaryforthebanktosurvive.
The reason for the different outcomes for RBS and HSBC was the difference in
leadershipandmanagementstyles.Additionally,thedecisionbyMr.Goodwintoput
hisowninterestsbeforethelong-termsuccessofthebankcallshiscompetencyand
integrity into question. Fred Goodwin acted alone in managing the bank with no
controlling force challenging his decisions and strategy.His only goalwas to grow
the company at a quick rate without consideration of the risks RBS became
vulnerable to. Other banks, like HSBC were managed by leaders who had visions
whichincludedsustainablegrowthandfactoredinrisksassociatedwithfastgrowth.
Additionally, theywere supportedbyBoardswhoheld themaccountable for their
actions. TheBoardsofotherbanksalsomade sure that theywere complyingwith
corporategovernanceprinciplesandnotneglectingtheresponsibilitiestheyhadto
theinvolvedstakeholders.
37
8.4 HSBCInterviewSummary
In 2008 Michael Geoghegan was the CEO of Hongkong and Shanghai Banking
Corporation Holdings PLC. He was perceived as a strong and positive leader who
successfullynavigatedthebankthroughthefinancialcrisisin2008.Mr.Geoghegan
was highly involved in the development and implementation of the company's
strategiesduringthattime.Thestrategyandtheplanonhowitshouldbeexecuted
wasmade in cooperationwith theemployeesworking in seniormanagement.Mr.
Geogheganwas also aware of the strengths of these strategies and expected the
peoplewhoheldpositionsinseniormanagementtoknowthemaswell.Theywere
thenabletomanagetheirteamsindependentlyandaccordingly.
Theparticipantsoftheinterviewcametotwodifferentconclusionswhenaskedhow
theBoardofDirectorsresponsetothecrisisimpactedthemanagementstyleofthe
CEO.Thefirstperspectivewasthattherewasnovisiblechangeinthemanagement
styleduringandafterthecrisis.Thereasonforthiswasthehighconfidence inthe
abilities, experience and know-how ofMichael Geoghegan. The second viewpoint
was that the Board of Directors started to become more visible and active in
contributing to HSBC’s business. The Board's actions further supported Mr.
Geogheganandledhimtobeabletofocusonthecorecompetencies,strengthsand
strategieswithinthebank.
The Board’s intervention during the crisis did not have a huge impact on the
outcomeforHSBC.Theyweremoreactivelyinvolvedinfollowingthedevelopments
inthemarket,analyzingtherisksinthebankingindustrywhichhadthepotentialfor
destabilizing HSBC, and overseeing Michael Geoghegan. Due to the fact that the
bankhadastrongcapitalposition,goodliquidity,avarietyoffundingsources,good
asset quality, geographic and product diversification itwas possible to absorb the
shockofthefinancialcrisisandcontinuetheeffectivestrategytowardsattainingset
goals.
Even though HSBC came through the crisis without requiring a bailout, the bank
sufferedduetothesystemicproblemsoftheindustry.Therewerecruciallessonsto
belearnedwhichallbankstooknoteof,theseincluded:
• stayingfocusedoncorebusinesses
38
• ensuringsufficientcapitaltoabsorbshocks
• ensuringhighassetquality
• ensuringdiversificationintheareasfundingandliquidity
• the need for Boards to challenge their CEO’s, especially if they have an
autocraticleadershipstyle
• theneedforcompetentBoardswhoapplytheprinciplesofgoodcorporate
governance
HSBC had an effective strategy which was working towards getting through the
financial crisis withminimal damage. Due to this therewere no changesmade in
theircorporategovernance,leadership,andmanagementpractices.
TheBoarddefinitely contributed to the survival ofHSBC. They supported theCEO
andothermembersinthemanagementteamtoensurethatthelong-termstrategy
for sustainable growth was executed. By monitoring and controlling the
development and implementation of the strategy by the senior executives, HSBC
managed to get through the financial crisis without any major setbacks. Both
governing forces, the Board and the CEOwere responsible for and contributed to
thissuccess.
A crucial reason for the success of HSBCwas the clearly outlined strategy. It was
focusedon the core strengths of the business regarding customers, products, and
geographical locations.RBSwas lesssuccessful,becausetheyhadastrategywhich
focusedsolelyonexpandingtheirbusiness. Inadditiontothat the implementation
andexecutionof thestrategywasnoteffectiveandsloppy.RBSstarted toacquire
banksinternationally,suchasCitizensBankUSandABNAmroinTheNetherlandsto
growataquickerpace.Theywerealsoknowntothrowtheirbalancesheetbehind
transactions which was irresponsible and tremendously risky. This strategy finally
ensuredthatRBSbecamethelargestbankontheglobe(measuredbytotalassets)in
2008.Atthesametimethestrategycertainlydidnotpayoffinthelongterm,asit
putthebank intothepositionofhavingtobebailedoutbythegovernmentwhen
thefinancialcrisishittheUKbankingsector.
39
8.4.1 Analysis
By interviewingRBSseniormanagers itbecameveryclear that thecombinationof
theleadershipofFredGoodwinandthefailureoftheBoardtoensureoversightof
hismanagerialactionswastheprimaryreasonforwhyRBShadtobebailedout.The
authoritarian leadership stylewhichwasemployed lead to theCEOholdingall the
powerintheorganization.Furthermore,heinstilledfearinothermembersofsenior
managementtospeakoutagainstthestrategybeingpursuedduringthattime.
The only reason why RBS was able to survive was due to the bailout by the
government and the support of the Bank of England. As soon as the Board was
overturned Fred Goodwin was removed from his position as CEO. The newly
appointedCEO,StephenHesterwasconsideredtobeamoreparticipativeleader.He
worked in cooperation with the senior management team to develop a more
conservative strategy for RBS. Additionally, the newmembers of the Board were
more diligent in terms of oversight. They closely monitored Mr. Hester's
implementation of the new strategy and ensured the compliance of a stricter
corporategovernmentpolicyatthebank.
The interviewswithseniormanagers fromHSBCsupporttheclaimthattheCEOof
HSBC during the financial crisis in 2008, Michael Geoghegan had a delegative
leadershipstyle.Thismeansthathewasworkingtogetherwiththemembersinthe
management team and the Board members of HSBC. He empowered the other
employeestohaveself-initiative,gavethemthepowertomaketheirowndecisions
andthereforefosteredaproductiveandeffectiveworkenvironment.Togetherthey
developedastrategywhichallowedthecompanytogrowataslowbutsustainable
rate. Additionally, they took the risks which HSBC was exposed to, due to the
accommodativeregulationsintheUKbankingsector,veryseriously.
Byapplyingadelegativeof leadershipstyleMichaelGeogheganleadHSBCthrough
thecrisiswithoutanyseveredamagetothebank.TheBoardofDirectorssupported
Mr.Geoghegan's leadershipstyle,which iswhyheremained in thepositionof the
Chief Executive Officer during the crisis. The Board worked closely with Michael
Geogheganand supervisedhim, inaddition to theother seniormanagers tomake
surethattherewerenobreachesincomplyingwiththesetregulationsforcorporate
40
governance. This is the reason for HSBC's success during the UK banking crisis in
2008.
As the interviewparticipantswerepartofRBSandHSBCduring the financial crisis
andheldleadershippositionsinthebanksduringthattime,theycontributedtothe
outcomeofthecrisis.InallinterviewstheresponsibilitywasplacedontheCEOsand
theBoards.Combiningthesystemicproblemsinthebankingindustryandthebonus
culturefosteredoverthepastdecades,employeesinseniormanagementwerenot
incentivizedtochallengeuppermanagement.Theparticipantswerenotspecifically
asked about the active involvement of seniormanagement in contributing to the
crisis in the interviews. Nevertheless, senior managers hold a certain amount of
responsibilityfortheresponseduringthecrisisandtheoutcomethereafter.
9 Conclusion,RecommendationsandLimitations
9.1 Conclusion
The conclusion which can be drawn from this study is that leadership and
managementarecloselylinkedtothedirectsuccessorfailureinabank.
The example and view that RBS providedwas that the autocratic leadership style
whichwasdemonstratedbyFredGoodwinwasdetrimentalandcontributedtothe
crash of the bank. The hostile work environment which an autocratic leadership
stylefosteredledtotheCEObeingtheonlypersonmakingstrategicandmanagerial
decisions. The main issue that occurs when one person makes such important
executive decisions is that there is no open exchange and communication of
different opinions and solutions. The CEO ends up dictating the direction of the
bank.Thisdoesnotmeanthatanautocraticleadershipstylecanneverbesuccessful,
butcombinedwithpersonalitytraitswhichFredGoodwindemonstratedautocratic
behaviorcannotleadtogoodoutcomes.
The leadershipbytheBoardofDirectorsandStephenHesterdemonstratedduring
thecrisiswasexactlywhatwasneededtoallowthebanktosurvive.Bysecuringthe
support of the government the Boardmanaged to buy some time. After that RBS
wasintheadaptivephase.ThisphasewasnavigatedbyMr.Hesterwhowasableto
41
fosterchangeandadoption,embracethedisequilibriumanduncertaintycreatedby
itandgenerateleadershipamongtheothermembersinthemanagementteam.His
leadershipstylewas lessautocraticandmoreparticipativethanthatof the former
CEO. This created an inclusive work environment which allowed the other senior
managerstobepartofmakingstrategicdecisionsandthereforeenrichedthework
environmentandensuredeffectiveworkanddecisionmakingprocesses.
Ontheotherhand,HSBC'sexampleshowedathatadelegatingleadershipstylewas
beneficialandevenvital tocreatestrong leadershippositions.MichaelGeoghegan
empowered the members of his management team to be strong and positive
leaders. By allowing them a certain amount of responsibility and decisionmaking
powertheycouldgrowasleaderswhichcreatedanevenstrongercultureofpositive
leadership at HSBC. By allowing people to have a certain amount of power Mr.
Geoghegan additionally promoted the idea of exchange between themembers in
senior management and throughout the business, in the form of constructive
criticismand feedback.Thisenabled theBoardofDirectors tocarryout itscontrol
function in a productive way. The confirmation that HSBC was operating with an
effectiveandenlightened leadership stylebecameclearwhen thecrisishit theUK
bankingsector.Asmostbanksdid,HSBCbecamestrainedfinancially.Nevertheless,
the important differencewas that therewere no changes in seniormanagement,
nor in their leadership style. Thebank continued topursue the samestrategyand
wascorrecttodoso,becauseitcontributedtotheirsurvival.
Byanalyzing the leadership stylesdemonstratedatRBSandHSBCduring thecrisis
theconclusioncanbedrawnthatanautocraticleadershipstylecanleadtoadverse
effects on a bank and can even cause it to fail. That is not to say that acting
autocratically isalwaysanegativething.Aleaderhastobedecisiveandbeableto
takeautocraticactionswhennecessary.Thereisno“correct”leadershipstyleforthe
bankingindustryassuch.Thechoiceof leadershipstyleverymuchdependsonthe
situationincombinationwiththeleader’spersonalitytraits.
Sound corporate leadership and management are further essential, because they
count towards the overall corporate social responsibility a bank has towards its
stakeholder. RBS certainly demonstrated poor judgement in corporate leadership
andmanagement.TheextentofthisproblemleadtoCSRissues.Thecorporateweb
42
pageforRBSindicatedthatthebankhasbecomemorediligentregardingthisissue.
The turnaroundon this issue shouldbe treatedwithcaution,asbanks remain for-
profit companies who have shareholders to answer to whose interest is mainly
focusedonthereturnoninvestment.
9.2 Recommendation
As mentioned before there is no one perfect leadership style. To decide which
leadershipstyleshouldbeappliedit iscrucialthatfactorssuchaspersonalitytraits
are included in the decision. For example, someone who is prone to risk-taking
behaviorwilllikelytransferthistotheirleadershipstyle.
Additionally,itisveryimportanttocreateaworkenvironmentwherethereisactive
communication and exchange between the members. An openness to different
viewpoints and ideas generates more valuable and better strategies for the
company.
9.3 Limitations
During the process of reviewing and analyzing the data, the studywas facedwith
several limitations hindering the clearance of the objectivity of the conclusions
basedonconductedtests.
Thefirstidentifiedrestraintwasthesmallsamplesize.Duetothefactthatonlytwo
employeesofeachbankwereinterviewedtheresultsmaynotberepresentativefor
allpeopleworkinginseniormanagementatRBSandHSBC.
Afurtherissueisthesubjectivityoftheanswers.Duetothepersonalinvolvementof
theparticipants in theongoingsduring theUKbanking crisis in2008 theanswers
maybeskewed.
Finally, there isalsoa lackofcertaingeneralizabilityof thesecases.TwoUKbanks
wereanalyzed inthecourseofthisstudy.Whiletheyareagoodrepresentationof
whatbanksweredealingwithduringthecrisis,theoutcomeofthisstudyshouldnot
be transferred to the whole industry. To achieve a better sense of the specific
differences among banks during that time, amore comprehensive analysis of the
differentinstitutionsisrequired.
43
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Appendices
InterviewA
RBSInterview1(24.02.2016)
MynameisVivianTsolakisandIamcurrentlyinmyfinalsemester(6.semester)at
Modul University in Vienna, Austria. I am pursuing a Bachelor of Science degree
majoringinInternationalManagement.AsthefinalpartofmystudiesIamcurrently
workingonabachelorthesis.Thetopicofmythesisismanagement,leadershipand
CSRintheUKbankingsectorandIamveryinterestedinresearchingRBS.Toelevate
thethesisandmakethefindingsmoreinterestingandrelevant,primaryresearchis
necessary. I would appreciate if you could give me your time and expertise and
answerthequestionsbelow.
All participants of this study must take part voluntarily. Their answers to the
interviewwillbekeptanonymouslyandthereforenoresponseswillbeattributedto
anyindividualansweringtheinterviewquestions.Furthermore,afterrespondingto
theinterviewquestionsallparticipantshavetheoptiontowithdrawtheiranswersat
anytime.
1. How would you describe the corporate behavior and personality of Fred
Goodwinatthetimeoftheglobalfinancialcrisisin2008?Washealeader*
oramanager*?
*Definition Leader: Envisions and articulates the purpose ormission of an
organizationandthestrategyforattainingit.
*Definition Manager: Oversees the implementation of the purpose or
missionofanorganization.
FredGoodwinwasaverystrong leader,whowasnotopentochallengeor
seeking consensus. He ran the bank his way and nobody wanted to
challengehimorgetinthewayofhisplans.
2. HowdidtheBoardofDirectors'responsetotheglobalfinancialcrisisimpact
themanagementstyleoftheCEOatRBS?
48
TheBoardwaseffectively turnedoverafter theglobal financial crises.The
government stepped in to bail out the bank which would otherwise have
failed. As the dominant shareholder and with Board representation, Fred
Goodwin was removed as CEO and the government appointed Stephen
Hester, and at the composition of the Board was also changed.
Under new management appointed by the new Board, the new CEO
adopted a very different style, much more of a manager focused on
execution of a strategy aimed at sorting out the bank's problems and
returningthebanktoprofitability.
3. To what extent did the Board's intervention during the financial crisis
influence the outcome for RBS? (and the bank's eventual bail out by the
government)
Astheseverityofthefinancialcrisisbecameapparentandthedirefinancial
positionofthebankbecameclear,itwascriticalthattheBoardinterveneto
enlistthesupportofthegovernmentandtheBankofEnglandtoensureRBS
survivalandthestabilityoftheUKbankingsystem.
4. What were the crucial lessons from the financial crisis, and the resulting
changes in leadership, management practices and corporate governance?
How are they visible in the behaviors of the current management and
leadershipofRBS?
The lessons around basic banking disciplines were stark. These included
ensuring:
• adequacyofcapitaltoabsorbfinancialshocks
• soundassetquality
• minimalassetconcentrationsegRBSwasexcessivelyexposedtoreal
estate
• adequacyofliquidityanddiversityoffundingsources
Beyondthis:
• aclearstrategywhichwasbasedongoodbusinessjudgement
backedupbyrobustanalysisandforecasts
49
• aCEOwhowouldacceptchallengeandbepreparedtoconsider
alternativeviews
• aBoardpreparedtochallengetheCEOanddemonstrategood
corporategovernance
5. TowhatextentdidtheleadershipoftheCEOandthegovernancepractices
of the Board ultimately contribute to the survival of RBS? (requiring
governmentsupport)
The new leadership and Board of RBS appointed after the global financial
crisiswere instrumental in the survival of RBS. They demonstrated a clear
vision of the purpose for the bank's existence and strategy to accomplish
thatandthisprovidedunambiguousguidanceforallemployeesofthebank
astothebehaviorsrequiredtofulfillthegoalsofthebank.
6. WhatdifferentiatedtheleadershipandmanagementstyleofRBSfromthat
ofbankswhichdidnotrequireabailout(likeHSBC)?
Prior to the financial crisis, RBS leadership and management style
personified by Fred Goodwin was leadership without accountability and
therewasanunhealthyarroganceabouthisintimidatingmanagementstyle
which instilled fear into subordinates. He pursued a simple strategy of
growthbutwithnostrategicvisionbeyondthat.Otherbanksseemtohave
moreapproachableCEO'swithclearervisionsfortheirbanksandsupported
by Boards with stricter disciplines around their corporate governance
responsibilities.
InterviewB
RBSInterview2(24.02.2016)
MynameisVivianTsolakisandIamcurrentlyinmyfinalsemester(6.semester)at
Modul University in Vienna, Austria. I am pursuing a Bachelor of Science degree
majoringinInternationalManagement.AsthefinalpartofmystudiesIamcurrently
workingonabachelorthesis.Thetopicofmythesisismanagement,leadershipand
CSRintheUKbankingsectorandIamveryinterestedinresearchingRBS.Toelevate
50
thethesisandmakethefindingsmoreinterestingandrelevant,primaryresearchis
necessary. I would appreciate if you could give me your time and expertise and
answerthequestionsbelow.
All participants of this study must take part voluntarily. Their answers to the
interviewwillbekeptanonymouslyandthereforenoresponseswillbeattributedto
anyindividualansweringtheinterviewquestions.Furthermore,afterrespondingto
theinterviewquestionsallparticipantshavetheoptiontowithdrawtheiranswersat
anytime.
1. How would you describe the corporate behavior and personality of Fred
Goodwinatthetimeoftheglobalfinancialcrisisin2008?Washealeader*
oramanager*?
*Definition Leader: Envisions and articulates the purpose ormission of an
organizationandthestrategyforattainingit.
*Definition Manager: Oversees the implementation of the purpose or
missionofanorganization.
FredGoodwinwasaveryaverystrongleaderwhowouldnotbechallenged
andevencameacrossasabully.
2. HowdidtheBoardofDirectors'responsetotheglobalfinancialcrisisimpact
themanagementstyleoftheCEOatRBS?
TheBoardchangedandsodidRBS.StephenHesterwasappointedCEOand
hecameinwithaclearmissiontofixproblemsincontrasttotheaggressive
andcavaliergrowthagendaofFredGoodwin.
3. To what extent did the Board's intervention during the financial crisis
influence the outcome for RBS? (and the bank's eventual bail out by the
government)
The perilous state of RBS at the time of the crisis was so severe that
responsibilityforthebankwastakenoutofthehandsofmanagementand
theBoard,andthegovernmenttookover.
51
4. What were the crucial lessons from the financial crisis, and the resulting
changes in leadership, management practices and corporate governance?
How are they visible in the behaviors of the current management and
leadershipofRBS?
Thelessonsarisingfromthecrisisweresticktogoodsolidbankingprinciples
inhowthebankdoesbusiness,do thebusinessyouknowandunderstand
anddemonstratedisciplineandhavegoodcontrols.This ishowthebankis
nowbeingmanaged.
5. TowhatextentdidtheleadershipoftheCEOandthegovernancepractices
of the Board ultimately contribute to the survival of RBS? (requiring
governmentsupport)
Atthetimeofthecrisis,notatall.ThenewmanagementandBoardplayeda
big role in stabilizing the bank but survival was only possible with
governmentsupport.
6. WhatdifferentiatedtheleadershipandmanagementstyleofRBSfromthat
ofbankswhichdidnotrequireabailout(likeHSBC)?
Fred Goodwin ran the bank as his own enterprise without material
accountability to theBoard.Otherbankswhichsurvivedwithoutabailout
from the government were run and managed according to commonly
acceptedmanagementandcorporategovernanceprinciples.
InterviewC
HSBCInterview1(25.02.2016)
MynameisVivianTsolakisandIamcurrentlyinmyfinalsemester(6.semester)at
Modul University in Vienna, Austria. I am pursuing a Bachelor of Science degree
majoringinInternationalManagement.AsthefinalpartofmystudiesIamcurrently
workingonabachelorthesis.Thetopicofmythesisismanagement,leadershipand
CSRintheUKbankingsectorandIamveryinterestedinresearchingRBS.Toelevate
thethesisandmakethefindingsmoreinterestingandrelevant,primaryresearchis
52
necessary. I would appreciate if you could give me your time and expertise and
answerthequestionsbelow.
All participants of this study must take part voluntarily. Their answers to the
interviewwillbekeptanonymouslyandthereforenoresponseswillbeattributedto
anyindividualansweringtheinterviewquestions.Furthermore,afterrespondingto
theinterviewquestionsallparticipantshavetheoptiontowithdrawtheiranswersat
anytime.
1. HowwouldyoudescribethecorporatebehaviorandpersonalityofMichael
Geoghegan at the time of the global financial crisis in 2008? Was he a
leader*oramanager*?
*Definition Leader: Envisions and articulates the purpose ormission of an
organizationandthestrategyforattainingit.
*Definition Manager: Oversees the implementation of the purpose or
missionofanorganization.
Duringtheglobalfinancialcrisis,MichaelGeogheganprovidedastrengthof
leadershipasisrequiredtoovercomethesignificantchallengespresentedin
a time of crisis. He led strongly from the front, and expected his direct
reportstomanageandexecute.
2. HowdidtheBoardofDirectors'responsetotheglobalfinancialcrisisimpact
themanagementstyleoftheCEOatHSBC?
The Board took confidence in Michael's knowledge of and significant
experienceinthebankingindustryandwithHSBC.Asaresult,therewasno
perceptible change in themanagement style evident throughout the bank
aftertheglobalfinancialcrisis.
3. To what extent did the Board's intervention during the financial crisis
influencetheoutcomeforHSBC?(nobailout)
WhilsttheBoardactivelyfolloweddevelopmentsinthemarketsthroughthe
globalfinancialcrisis,theprofileofHSBC'sbusinessdidnotexposethebank
tothedirectriskswhichresulted inthefailureor instabilityofotherbanks
53
such as Lehman Brothers, Citgroup and RBS. Therefore, the Board could
focusmoreonthesystemicrisksinthebankingsectorandhowtheymight
challenge thebank.However,HSBCwason such a strong financial footing
withasolidcapitalposition,goodliquiditywithdiversifiedfundingsources,
good asset quality and strong geographic and product diversification that
thebankwaswellinsulatedfromtheshocktothefinancialsystem.
4. What were the crucial lessons from the financial crisis, and the resulting
changes in leadership, management practices and corporate governance?
How are they visible in the behaviors of the current management and
leadershipofHSBC?
As I commented in response to your previous question, HSBS fared well
through the global financial crisis because of the profile of our business.
Someofthosebankswhichdidnotfarewellweredisadvantagedby:
• insufficientcapitaltoabsorbtheshocke.g.LehmanBrothers
• poorassetqualitywhichdeterioratedquicklyafterthecrisisstarted
e.g.RBS
• inadequate diversification in sources of funding and liquidity e.g.
NorthernRock
• autocraticCEO'sneedstrongBoardstochallengethemandprovide
balance
• without competent Boards supported by good corporate
governancedisciplines,CEO'scanmakepoorstrategicandbusiness
choices
Aswewerenotasadverselyaffectedby theglobal financialcrisisasother
bankswedidnotexperienceanysignificantmanagementchangeasadirect
consequence. We had a management change at the end of 2010 when
Michaelretiredbutthiswasnotconnectedtoeventsof2008.
5. TowhatextentdidtheleadershipoftheCEOandthegovernancepractices
oftheBoardultimatelycontributetothesurvivalofHSBC?
ItisclearthatMichaelGeoghegan,wellsupportedbyhismanagementteam,
hadthebankwellpositionedacrossallthekeymetricsforprudentandlong
54
termsuccessfulbankperformance.TheBoard,nodoubt,playedasignificant
role inmonitoring andmanaging the evolution and execution of all these
strategies. I would therefore say that both the CEO and the Board played
centralrolesincontributingtothesuccessandsurvivalofHSBC.
6. WhatdifferentiatedtheleadershipandmanagementstyleofHSBCfromthat
ofbankswhichdidrequireabailout(likeRBS)?
I thinkHSBChaddeveloped clearer andmore robust strategies for growth
thanmanyotherbanks.Therefore,HSBC'sgrowthwasfoundedonourcore
strengths in terms of customers, products and geographies. In contrast,
other banks such as RBS seemed to be in pursuit of growth for growth's
sake,withoutandstrategiclogic.e.g.acquisitionofCitizensBankintheUS,
acquisition of ABN Amro in The Netherlands. They were known as deal
junkies andwould lead transactions and throw their balance sheet behind
transactionswhichotherbankswouldnotdo. That'showRBSbecame the
largestbankintheworldin2008asmeasuredbytotalassets.
InterviewD
HSBCInterview2(21.03.2016)
MynameisVivianTsolakisandIamcurrentlyinmyfinalsemester(6.semester)at
Modul University in Vienna, Austria. I am pursuing a Bachelor of Science degree
majoringinInternationalManagement.AsthefinalpartofmystudiesIamcurrently
workingonabachelorthesis.Thetopicofmythesisismanagement,leadershipand
CSRintheUKbankingsectorandIamveryinterestedinresearchingRBS.Toelevate
thethesisandmakethefindingsmoreinterestingandrelevant,primaryresearchis
necessary. I would appreciate if you could give me your time and expertise and
answerthequestionsbelow.
All participants of this study must take part voluntarily. Their answers to the
interviewwillbekeptanonymouslyandthereforenoresponseswillbeattributedto
anyindividualansweringtheinterviewquestions.Furthermore,afterrespondingto
theinterviewquestionsallparticipantshavetheoptiontowithdrawtheiranswersat
anytime.
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1. HowwouldyoudescribethecorporatebehaviorandpersonalityofMichael
Geoghegan at the time of the global financial crisis in 2008? Was he a
leader*oramanager*?
*Definition Leader: Envisions and articulates the purpose ormission of an
organizationandthestrategyforattainingit.
*Definition Manager: Oversees the implementation of the purpose or
missionofanorganization.
Michael Geoghegan provided positive leadership at HSBC. He knew his
strengthsandstrategiesandexpectedeveryoneonhisteamtobethesame
andmanagetheirteamsaccordingly.
2. HowdidtheBoardofDirectors'responsetotheglobalfinancialcrisisimpact
themanagementstyleoftheCEOatHSBC?
Aftertheglobalfinancialcrisis,theBoardbecamemoreactivelyvisibleand
engagedinthebank'sbusiness.ThatseemtomakeMGevenmorefocused
onthebank'scorecompetencies,strengthsandstrategies.
3. To what extent did the Board's intervention during the financial crisis
influencetheoutcomeforHSBC?(nobailout)
I don't think the Board really intervened. It looks like the y were more
activelyinvolvedbutintheend,thatwasjustobservingMGcarryingonwith
executionofthesamestrategyinthesameway.
4. What were the crucial lessons from the financial crisis, and the resulting
changes in leadership, management practices and corporate governance?
How are they visible in the behaviors of the current management and
leadershipofHSBC?
The lessonswere simple - stickwith thebusiness you knowandwhat you
aregoodat.Therewerenochangesinleadershipormanagementpractices.
The bar was raised on the level and intensity of corporate governance.
TherewasnosignificantmanagementchangesatHSBC.Theleadershipteam
andtheirstyleremainedquitestableandpredictable.
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5. TowhatextentdidtheleadershipoftheCEOandthegovernancepractices
oftheBoardultimatelycontributetothesurvivalofHSBC?
The leadership and the Board can be proud of the significant role they
playedinrunningandmanagingHSBCtightlysoastodeliver itsuccessfully
andintactthroughthefinancialcrisis.
6. WhatdifferentiatedtheleadershipandmanagementstyleofHSBCfromthat
ofbankswhichdidrequireabailout(likeRBS)?
HSBChadaclearandunambiguousstrategy.RBSandotherbankswereless
preciseandsloppy,evencarelessintheexecution.