Here you can read an independent review of how Barclays lost its way and I submit to you that the fundamental problem was grammar:

In 2005, John Varley launched the Group’s five Guiding Principles – ‘customer focus’, ‘winning together’, ‘best people’, ‘pioneering’ and ‘trusted’ – demonstrating intent to oversee the Group through one set of values. (Section 8.14)

Are your five Guiding Principles nouns or adjectives?1 None can say. Even 30 Rock’s six sigmas were more grammatically consistent. If your five guiding principles are clearly just some mismatched words that someone wrote down and never edited, and that no one could actually use in a sentence, then: they’re not guiding anyone.2

And they didn’t. The lack of a shared understanding of values across Barclays spawned this chart, which might be my favorite thing ever:

Other than that though the report is kind of boring.3 There’s a lot of mildly entertaining narrative: the report dredges up all the nonsense of Barclays’ past, from its Protium off-balance-sheet scam (Sections 5.29ff) through its payment protection insurance and small-business-swaps mis-selling (Sections 6.15ff, 6.25ff) all the way to Libor (Sections 6.55ff), with a stop-off at the Del Monte buyout of all things (Sections 6.51ff) and a whole chapter (7. Regulatory and Tax Matters) on Barclays’ Structured Capital Markets tax-shadiness business.

But the recommended solutions don’t leave me with a ton of confidence that Barclays has solved all of its problems. It’s hard though, right? Like here is the problem and it’s a perfectly real problem:

[Barclays'] rapid journey, from a primarily domestic retail bank to a global universal bank twenty or so years later, gave rise to cultural and other growth challenges. The result of this growth was that Barclays became complex to manage, tending to develop silos with different values and cultures. Despite some attempts to establish Group-wide values, the culture that emerged tended to favour transactions over relationships, the short term over sustainability, and financial over other business purposes. To some extent these characteristics were reflected in the broader business environment. But the overriding purpose at Barclays in the lead up to the crisis and beyond was expressed in terms of increases in revenues and profits, return on equity and competitive position. (Section 2.13)

Your problem is that you were focused on making money. You should have focused more on trusted, I guess.

How do you fix it? After that diagnosis there’s a list of worthwhile but sort of limp recommendations (Section 2.40), focusing principally on:4

  • Vague puffery about values – “Barclays should institute learning programmes which actively encourage frequent discussion of its chosen values among all staff, focusing on understanding potential conflicts and how to address them. … To make Barclays’ commitment tangible to staff, senior management should lead and attend as many of these sessions as is practical.”
  • Acquiring a functioning board of directors, with banking experience, a lot of time devoted to Barclays, and useful information from management.
  • HR, recruiting and comp practices that are good rather than evil – “Approaches to pay across the bank should be based on common underlying principles and be aligned with both the Group’s values and the level of risk to which it is exposed,” and “Barclays’ approach to reward should be much more broadly based than pay, recognising the role of non-financial incentives wherever possible,” which is precisely never.

Actually to be fair the discussion of compensation is long and thoughtful and earnest and takes up a whole chapter (11. Pay) and I didn’t really read it; this tells you more about what you need to know than does the Salz Review’s focus on keying long-term incentives to corporate rather than business-unit returns or whatever:

Most but not all of the pay issues concern the investment bank. To some extent, they reflect the inevitable consequences of determinedly building that business – by hiring the best talent in a highly competitive international market (and during a bubble period) – into one of the leading investment banks in the world. The levels of pay (except at the most senior levels) were generally a response to the market. Nevertheless, based on our interviews, we could not avoid concluding that pay contributed significantly to a sense among a few that they were somehow unaffected by the ordinary rules. A few investment bankers seemed to lose a sense of proportion and humility. (Section 2.29)

You can find ways to make investment-bank compensation less of a carrier of risk. The report suggests a number of them, with a particular focus on de-emphasizing “financial reward as the primary motivator of employee behaviour.” This comp set seems well-designed to instill a sense of proportion and humility in bankers:

Hear that, bankers? If you don’t quit whining we’re gonna pay you like Apple Store employees.

But while instilling humility in your bankers might in the abstract be a worthwhile goal, in practice you start with bankers, few of whom are overstuffed with humility or an interest in acquiring more, and all of whom are keenly attuned to market values. And then you implement your scheme against a market backdrop. The report discusses the first-mover disadvantage in coming clean to regulators – as Barclays found, getting out ahead of your Libor troubles makes you a poster boy for badness – but the first-mover disadvantage in pay-for-humility schemes is even more obvious. “Your bonus is a lump of coal, Jenkins, but we think that you’ll be a better person for it” is likely to drive away all but those employees whose humility is most merited.

The fact that there’s a coordination problem doesn’t mean it’s insoluble: Barclays’ pre-crisis pay reflected a bubble-ish market, while its post-crisis pay doesn’t, and regulatory pressures, bonus laws, and its competitors’ own scandals might give Barclays a shot at actually implementing non-monetary, values-based, whatever rewards structures. And if it works, great: I for one would be fascinated to see what a bank made up of bankers who are not motivated by money would look like. There’s room for all kinds.

I don’t know though. The Salz Review notes approvingly that Barclays’ vague reforms are moving vaguely toward their vague implementation. For instance:

Antony Jenkins has launched the Transform Programme5 to address many of the issues we have explored. He has articulated the following values for Barclays: respect, integrity, service, excellence, and stewardship. And, while the bank’s externally articulated objectives still include a financial focus to deliver a return on equity in excess of the 11.5% cost of capital, it is underpinned by a broader statement of purpose: ‘Helping people achieve their ambitions – in the right way’.(Section 2.37)

But notice the one number in that paragraph, which casts just a bit of doubt on the rest. There you are, at Transform Programmed Barclays, choosing between two different paths. On Path A, you get a pretty healthy 11.5% return on equity by punching widows in the face. On Path B, you help people achieve their ambitions in the right way, with respect, integrity, service, excellence and stewardship, but you get an 11.25% ROE. At the end of the year you will have a review, and in your review various managers and colleagues will grade you in vague fuzzy subjective ways on your respect, integrity, etc., which basically all mean to them (when they spend two minutes filling out your review form) (1) making money and (2) not getting in their way.6 And the guy deciding your bonus will see a page of Exceeds Expectations on all the values things, and then at the bottom of the page he’ll see your ROE.

You’ll go with Path A, right? What do they think this is, the Apple Store?

Salz Review: An Independent Review of Barclays’ Business Practices
Barclays High-Pay Culture Brought Disrepute: Report [WSJ]
Report Faults ‘At All Costs’ Attitude at Barclays [DealBook]

1. Participles are adjectives in my world. You want to call them verbs, that’s on you.

2. Especially if, as the report finds, “values and cultural initiatives tended to be promulgated rather more passively (e.g., Barclays intranet) than through more interactive methods, reinforced throughout an employee’s career.” (Section 8.19) What? Like, you turn on your computer and there’s a Barclays Value of the Day? (“Today let’s Winning Together!”)

3. Though it was written by lawyers and so has flights of disclaimery brilliance like:

Other individuals considering the same information could form a different assessment of it. Similarly, the Salz Review might have formed a different assessment had it considered other information.

4. There are other specific recommendations scattered through the report, none more delightful than “Industry observation D: Open collaboration”:

[UK banks' efforts to support the effectiveness of regulation] should include consideration of ideas to assist both regulators and the banks improve mutual understanding. One example would be for banks to recognise the value to bankers, as part of their careers, of spending time (probably for around two years to be valuable) working in a regulator, and vice versa.

Oh man, we totally have that here, it is called the revolving door, it works great.

5. ITSELF GRAMMATICALLY DUBIOUS.

6. Here is a project for finance-sociologists: get a batch of internal reviews for some big banks. Look at the ratings for integrity or handshakefulness or whatever. Let’s say they’re on a 1 to 5 scale. What do you think the standard deviation of those ratings will be? What do you think it should be? My guesses are “0.2” and “1.0” respectively. You can get a rough sense of this from the Salz Review itself: “Across business units, the performance development system was skewed towards placing staff of all seniorities in the top performance bands – approximately 90% of RBB employees (in 2011) and 97% of the investment bank’s employees (in 2010) were placed in the top two of four bands.” (Section 10.13) All the children are above average.

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Comments (25)

  1. Posted by Guest | April 3, 2013 at 12:39 PM

    An Opening Bell and two posts by noon, none of which are by Shazar? Now that's what I call a good day.

  2. Posted by PermaGuestII | April 3, 2013 at 12:56 PM

    "I for one would be fascinated to see what a bank made up of bankers who are not motivated by money would look like."

    It looks like UBS.

  3. Posted by Guest | April 3, 2013 at 12:59 PM

    " If your five guiding principles are clearly just some mismatched words that someone wrote down and never edited . . . "

    We stand by our work product, and are proud of our efforts in moving Barclays toward a more inclusional, synergistic enharmonic.

    – McKinsey & Company, Premiere Corporate Image Consulting Division

  4. Posted by Geek | April 3, 2013 at 1:02 PM

    Footnote 3 is footnotery brilliance.

  5. Posted by Fewdollarsmore | April 3, 2013 at 1:31 PM

    Talking about 'customer focus’, Matt should give half of his material to Shazar. That way they can both be ‘winning together’ and give Bess a sense that she hired the ‘best people’ for her ‘pioneering’ blog and can be ‘trusted’ forever for breaking deals.

  6. Posted by Guest | April 3, 2013 at 1:59 PM

    When Barclays was just a domestic British retail bank, it's corporate values were "Jolly good show, old chap", "Cor blimey, guvnor", and "Not f**king likely".

  7. Posted by Guest | April 3, 2013 at 2:05 PM

    "Its" not "it's".

  8. Posted by VonSloneker | April 3, 2013 at 2:57 PM

    Props

    – Marty K., Principal, Galweather & Stearn

  9. Posted by Guest | April 3, 2013 at 3:05 PM

    Matt can you please explain to us what the hell a Bitcoin is?

  10. Posted by Physics Quant | April 3, 2013 at 3:33 PM

    I could never be with a bank that is 100% energy. To be useful to anybody it surely has to be at least partially matter.

  11. Posted by guest | April 3, 2013 at 3:48 PM

    Hey!

    -R. Dalio

  12. Posted by guest | April 3, 2013 at 3:54 PM

    I miss Bess =(

  13. Posted by guest | April 3, 2013 at 3:55 PM

    Thanks for your contribution, cheif.

  14. Posted by guest | April 3, 2013 at 3:56 PM

    When in doubt, Wall Street Oasis (always) has the answer.
    http://www.wallstreetoasis.com/blog/bitcoin-belie

  15. Posted by LeGueste | April 3, 2013 at 4:56 PM

    So.. it's a leftover card from MBA Drivel Bingo?

  16. Posted by CAPM | April 3, 2013 at 5:56 PM

    Matt Levine is to Financial Commentary/Analysis/Meh as Rich Froning Jr. is to Crossfit/Burpees/MU's

    -Not the Fittest on Earth but a Fan of His Work and of Footnotes

  17. Posted by LSO | April 3, 2013 at 6:34 PM

    Back to your fingerprinting with you!

  18. Posted by PAB | April 3, 2013 at 7:37 PM

    I can get the Math of moving as many investment bank business over to the commercial bank,you get a boost in PE multiple. But what happens when the profitable people leave the investment bank that was 60% of revenue and group revenue falls . Where does the dividend come from? Isn't that what investors want.

  19. Posted by Brudda | April 4, 2013 at 8:38 AM

    "Chief", not "cheif".

  20. Posted by Guest | April 4, 2013 at 9:04 AM

    Over the top, bags of smoke..

  21. Posted by truth | April 4, 2013 at 9:27 AM

    Nothing says "trusted" like a pinky ring

  22. Posted by fittingin | April 4, 2013 at 9:46 AM

    Matt, your commentaries.. your language.. your understated humor…you… complete me.

  23. Posted by Guest | April 7, 2013 at 5:04 PM

    By my calculation, ROE would climb 3% if they replace Client Focus with Loving Success across the entire business.

  24. Posted by Johnson | April 27, 2013 at 1:55 AM

    Fabulous post content. There are some massive info sharing about this content. I am appreciated your brilliant work. Lovely website.

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