This blog post has been overtaken by events. Bob Diamond resigned on 3 July 2012.
It is unlikely that the LIBOR scandal as described in the FSA report is going to be enough to remove Bob Diamond from Barclays. There are three main reasons why he is going to stay. From these three reasons, we can see important management lessons for leaders facing a similar crisis.
He has the support of the Board
First. He has the support of the Board for the following reasons.
- He has not done anything wrong personally. He can say, as far as we know, he has not done anything wrong.
- He cooperated with the FSA investigation and save a drawn out litigation and will be in the clear when other banks are penalized.
- He paid early on the fine and saved almost £30 million pounds for Barclays on the deal.
- He gave up his bonus to reduce the scrutiny. (He understands the PR value.)
- He has seen Barclays Capital through some tough times and he has a vision for the future that the Board support. They were not looking to oust him before this scandal.
He has a history of success that made money for Barclays.
Second. His history of success has made a lot of money for Barclays and positioned them for the future. The Board and stakeholders will remember he avoided the fate of RBS and Lehman Brothers by taking risky moves against the market. Diamond understood the need to go to external investors to get support. This gives him leverage. Yes, it was a sign of weakness, as Barclays was not strong enough to go it alone in the turmoil. However he was able to get Lehman Brother’s one profitable part. Although the UK government stopped Barclays from taking over Lehman Brothers completely, it was probably better than the other offer being considered which saw RBS rescuing Lehman Brothers. This is like a sinking ship trying to save a drowning man.
Diamond picked up the profitable parts of Lehman Brothers at a discount. The move gave Diamond a foot in the United States and it solidified his place in the market. In effect, it secured his flank. When he had to face the head on decision about a bailout, he took another risk and went to the external investors. A risky move, but it worked. Of the British banks, Barclays has come out of the crisis relatively safe. They avoided nationalisation and constraints.
A vision for the future is set with no successor in site.
Three. The Board are relying on Diamond. There is no successor in place or even being considered. If Diamond had made previous mistakes or successors were in place, the situation might be different. However, the Board understand that their current market position is based upon Diamond. In the short and medium term, they would suffer more if he left than if he stayed. What remains to be seen, though, is whether he can repair the damage. If his past success is to be considered, then there is a good chance he will succeed. Diamond knows he has a strong hand to play against his board and stakeholders. He acted by forgoing his bonus. In effect, he has pre-empted the critics. He is a smart and perceptive operator who knows how to work the system, which is why other leaders should consider the lessons he is teaching.
First, Diamond’s quick letter in response to Andrew Tyrie shows that he is well prepared. He was not on the back foot with this issue. He was prepared for the announcement and he expected Tyrie’s request to come to the Committee. His letter is an excellent example of crisis management. Admit mistakes, vow to fix it, make an act of contrition (forgo a very large bonus) and show that it was not his fault. The only weakness was his insistence on “rogue employees”. His stance makes him vulnerable to the potential counter attack on his leadership and the culture that is his responsibility.
Second, he understands the timing is critical in such situations to reassure the market and put the attackers on the defensive. By agreeing to such a quick timescale, there is less time for the Committee to prepare. He will have an advantage.
Third, Diamond knows he has the Board’s backing. He could not write the letter or agree to see the Committee if he had any doubt over the Board. What this shows is that he has kept the Board involved, to an extent, so that they are not surprised by the FSA news nor are they surprised by the Committee request. What this shows is that he has good communication within the organisation on issues that matter. In other words, his boss is not out of the loop.
Fourth, Diamond has a good story to tell to the Committee. He can claim he is fixing the problem and changing the culture. He has a vision for the future, which will make it harder for critics to undermine his position. He can say he has a solution that needs time to work so why change horses in mid-stream.
Unless other revelations emerge that show widespread cheating or show that Diamond was directly involved, he will survive this crisis. To put it differently, but directly, why should he go?
There will be strong political pressure for Diamond to resign. If you remember, Goodwin hung on for quite a while after the initial announcement of RBS’s losses – and he had the full backing of the Board, too. He was finally forced out when the Government bought a controlling interest. Barclays isn’t collapsing, so the Government won’t be able to force the issue as it did with RBS. But Barclays’ share price has fallen by over 15%, which won’t please shareholders. It is possible that a shareholders’ revolt could force Diamond out.
However, what I think is much MORE likely is that shareholders will leave Diamond in place and force the resignation of Barclays’ chairman. A top head has to roll, and Diamond is hard to replace – which Marcus Agius is not.