Bob Diamond is a shrewd, powerful, deal maker who does not understand bureaucratic politics. On Wall Street, or in the City, your word is your bond. If you cannot keep your word, you cannot do business. Lehman Brothers collapsed in the end because no one could be believe their valuations on assets they were trying to sell. No one believed their word.
In bureaucratic politics, what matters is what is written down. Bureaucrats will say anything because they know what matters in Westminster or Washington DC is what is written down. What Bob Diamond did not realize was that to deal with a bureaucrat you have to ask them to write down what they are saying to know that you have a deal. If they cannot or will not write it down, you know they cannot keep their word. What Diamond should have done, to protect himself, was to ask Turn to put his request in writing. Had he done this, he would have immediately seen a different reaction. Instead, he took Turner’s implicit message; keep Barclays in the LIBOR band, as their word.
Someone trained in bureaucratic politics would have quickly seen the three problems that emerged from the conversation between Diamond and Turner. A bureaucrat would recognise these, but a banker would not. The reason a bureaucrat would recognise the issue and a banker would not is that the two worlds work to different rules. The cultural context for how they work shapes how they understand the situation. However, despite their differences, the approach to risk and risk management connects the two, which made it difficult for Diamond to see the problems. The first problem has to deal with how the Treasury reacted to being told other banks were not posting accurate LIBOR rates. The second problem was with what the Treasury’s implicit message required.
If they are more concerned about image, you should be worried.
On the first problem, the banker was explaining that the other banks were not posting accurate (honest) LIBOR rates. The other banks were putting in lower numbers to suit their purposes. According to Barclays, they were putting in accurate numbers. In a sense, what makes the whole episode ironic, Barclays was more honest in their listings and have suffered the most outrage. What should have alerted Barclays to an underlying issue was the way the Treasury reacted to the news. When the Treasury became aware of the discrepancy, they did not send in the FSA. Instead, they suggested, simply by noting their concern that Barclays was an outlier, that Barclays bring its rate in line with the rest of the LIBOR group.
The Treasury, like any image conscious or media sensitive management team, was more concerned with the appearance of the issue than the reality. What they believed to be the reality was the appearance of Barclays’ outlying rates. The Treasury, because it was focused on the image, was focused on the appearance shaping the reality instead of the reality creating the appearance. The Treasury, like mediocre managers, was concerned with managing the news rather than understanding and fixing the underlying problem. They were more concerned with the appearance of where Barclays was on LIBOR rather than the underlying reason why the appearance was created. They were less concerned with the fundamentals, which is what is the business in finance.
The concern for image would have played into Diamond’s concern for risk management. Diamond would have realized that the appearance of being in need of money would have created the belief that Barclays needed money. If unattended, the rumours would have created their own reality. However, that situation is different from the image management that Treasury is alleged to have required. They are linked, which made Diamond likely to understand the logic but not the intent, which is also likely why his subordinate would have misinterpreted the message.
If it is in writing you have evidence of their complicity
The second problem was that the Treasury was intimating by its observation that Barclays was an outlier, required an illegal activity. For Barclays to comply they would have to put their LIBOR numbers lower on purpose rather than reflect the reality. They would have to “fix” the LIBOR. If this is what the Treasury wanted, Diamond should have had that instruction in writing. The reason for this would be twofold. First, it would have made the Treasury stop and think about what they were asking. The request may not have stopped them, but it would have made them take a different approach to the issue. How the Treasury would have reacted to such a request would indicate how they viewed the conversation. If they were acting with integrity, they would have written it down. If they were acting without integrity, they would have become indignant, withdrew the request, or covered themselves by saying “the situation is clear enough without putting it in writing.”
If it is illegal they will not write it down (you hope).
The second point of putting it in writing was that it would have given Diamond the leverage necessary if things went wrong in the future. What the Treasury was doing, as has been suggested by the telephone memo, is asking Barclays to fix their rates. If that had been put in writing, they would be directly culpable for the outcome. In bureaucratic politics, the evidence and the audit trail are central to success. If you cannot prove what was discussed, then it was never discussed.
Who is asking? You or your boss?
The third lesson is that when dealing with bureaucrats, never accept their claim to be speaking for “senior figures in Whitehall” or for the “White House”. As Dean Rusk pointed out, when someone said, “The White House wants this document”, the White House is not a person. He said someone in the White House wants it. The assumption they are creating is the President wants it. If the President wants it, he will ask for it. If someone less than the President wants it, they can ask for it in their own name. The key lesson from bureaucratic politics was that when authority was speaking it had to be made to speak in its own name. If Tucker were acting on his own, asking to know hear the request from the source would have revealed it.
Lessons to learn for dealing with bureaucrats.
- Always have bureaucrats write down their instructions. Like good leaders, if they have integrity, they will write down their words.
- If the bureaucrat (or anyone else) wants you to do something that may involve illegality, make sure it is writing and you indicate what they have requested is potentially illegal.
- If the other party can intimate that someone in higher authority is requesting the information, the person with either higher authority speaks openly or you refuse to respond to the lower level operative.
- LIBORgate: Diamond v Tucker at Treasury Select Committee (order-order.com)
- Bob Diamond cuts up rough as he quits Barclays (guardian.co.uk)