Both of the banks that required huge injections from the taxpayer to stay afloat have thrown up some interesting leadership lessons.
The Royal Bank of Scotland group (RBS), which required a bailout of £45 billion and became 83 per cent government-owned back in October 2008, was reviewed in full by the Financial Services Authority (FSA); this review was finally published on 12 December. At 452 pages long, it had some important lessons concerning the leadership of RBS under the now notorious Sir Fred Goodwin.
Meanwhile, the Lloyds Banking Group (LBG), which required £21billion and became 41 per cent government-owned in January 2009, was able to announce on the 14 December the happy news that it’s new CEO Antonio Horta-Osorio would be able to return from sick leave on the 9 January next year.
2008 and 2011 seem like a whole lifetime apart, as so much has happened to the global economy, our banks, our businesses and our public services. However, three short years show that we still have some key leadership lessons to learn. These lessons have cost us dear in financial terms, but also in wider ways, as we read that UK unemployment at the end of October 2011 is up to 2.6 million or 8.3 per cent of the workforce.
The leadership lesson that RBS in 2008 and LBG in 2011 share is one concerning the danger of CEO omnipotence. It is clear from these two examples that a chief executive can be a single point of failure that, if broken, can have a hugely damaging impact on the business. Unless there is an extremely strong senior leadership team around chief executives, the business will be vulnerable either to their absence and potential departure in the Horta-Osorio case, or to their over-dominance in the Goodwin case.
At LBG, the weaknesses of the succession plan were revealed for investors and the public to see in these last couple of months. It might seem reasonable to relax succession planning when you have appointed a well-regarded youngish CEO just months ago. Horta-Osorio had been brought in from Santander UK to help LBG turn itself round, in order to enable the UK government to sell its large shareholding at a profit eventually. Lloyds Banking Group had lost several senior executives who had failed to secure the top job and had not yet replaced them with new, experienced executives. The new CEO took on everything himself in this huge new role and was not able to build up or bring in others quickly enough into senior roles to support him.
Of course, this would have come right over time but time was not kind to Horta-Osorio and the LBG board found itself exposed to whether a medical complaint would turn out to be minor rather than significant. The LBG share price went down 4.5 per cent the day that Horta-Osorio’s completely unexpected sick leave was announced; and this on a day when other banks’ stock rose (according to the Financial Times of 2 November).
The lesson is to make sure you have a permanent strong leadership cadre to avoid chief executives making themselves a single point of failure. The period after hiring a new one will be particularly risky as there will naturally be some changing of the guard. The LBG board is now staking its own future on its decision that Horta-Osorio will be fit enough to continue in this demanding job.
Interestingly the RBS story, although so different in many ways and all of three years earlier, points to a similar lesson in leadership – make sure you have many strong leaders in the business. The FSA review into the failure of RBS finds that Goodwin was too dominant as chief executive, ultimately nullifying the impact of other senior leaders. One of the FSA’s key recommendations is to require bank chief executives to be more accountable for appointing strong and qualified business heads to support them. In Goodwin’s case the strong business heads were not needed to stand in when he became exhausted, but to challenge him if they disagreed, and to be fully capable of running their business unit without the undue influence of the boss.
Leadership lessons can be hard to apply and it is for the HR department to make sure these issues are continuously addressed. Succession planning, for example, is always one of the hardest issues for leaders to deal with – it reminds them that they are dispensable and that others can do their job. However, there is a clear need to ensure that even the best CEOs are surrounded by other very strong leaders – to take the strain, to achieve the organisation goals and to challenge them. With a strong leadership group, all organisations will benefit from more sustainable performance and will have a better chance of getting round the single point of failure problem.