Sir Hector’s resignation together with that of Shaygan Kheradpir, chief operations and technology officer, was enough to drive the Barclays share price down 3 per cent on the announcement day.
Sir Hector was appointed in December 2012 by Antony Jenkins - the Barclays group chief executive - as part of their strategy to become the ‘go-to’ bank for all of their stakeholders. At the time, Mr Jenkins emphasised the importance of cultural change supported by a “second line of defence provided by controls and a world-class compliance function”.
The announcement about Sir Hector was a key component in this strategy as it followed a series of highly embarrassing revelations about rigging Libor and interest-rate swap mis-selling.
Barclays needed to put its house in order and to be seen to be putting its house in order.
After US bank Goldman Sachs was fined $550m (£342m) by the US Securities and Exchange Commission for its role in the Abacus case (in respect of which they did not admit their guilt) they announced they were going to revert to their core principles and to invest in more training. Scandals at other banks have been managed in a similar way.
There is a need for financial institutions be able to demonstrate that they are responding appropriately. The appointment of Sir Hector at Barclays fitted nicely into the damage limitation process allowing the bank to “manage” the compliance failings associated with the Libor problems.
Antony Jenkins tried to make the best of Sir Hector’s departure on sick leave by commenting “Sir Hector has been a great colleague on the group executive committee. Although only with us for 10 months, he has made significant progress towards creating a world-class compliance function at Barclays and in improving our relationships with regulators and governments.”
But Sir Hector’s task would not have been easy. The main objective was to achieve a change in culture but this is very difficult in an organisation where the old ways of doing things will be deeply ingrained. Changing behaviour will be like trying to stop a large ship – it takes a lot of time. It needs time to change attitudes and time to recruit new and different people. This may have been a source of stress that Sir Hector had to address.
Another source of stress for a regulator turned compliance officer is cost. While firms must invest in regulatory compliance, they also need to be commercial. Compliance is a cost that must be managed like any other. Enhancements in compliance arrangements may require investment and possibly recruitment which would be subject to internal review procedures and to constraints and budgets in the usual way: new investment in compliance would not be approved without a suitable case being made. Banks operate in competitive markets and cannot afford to be significantly out of line with competitors in terms of their compliance. A reluctance to invest could be a source of stress for a compliance officer seeking to expand and enhance existing arrangements.
Sir Hector’s own background is not entirely without blemish. He apologised to the Treasury select committee saying he was “truly sorry” for the RBS debacle. But he also tried to blame others – his predecessor, John Tiner (the former chief executive of the FSA), HM Treasury (because they promoted the light-touch regime that went so wrong) and also staff at the FSA (whom he described as “completely inadequate”).
Interestingly, recent comments from inside the FCA suggest that the current stance is back to light-touch or to being “firm friendly”. This is really rather soon after the financial crisis.
Both Sir Hector and his predecessor were unusual individuals in the FSA in that they had substantial relevant experience of the real world. Indeed, John Tiner promoted the buzzword “nous” to try to instill a more commercial approach inside the FSA where there was little.
Many at the FCA are career regulators with little or no relevant experience. For them, they rely on the rulebook – they could properly be described as ‘box tickers’. It is a bit like appointing referees for a rugby match where the referees have read and learned the rules but have never played rugby or even seen a match: how could they really be effective without real world experience of what it is they are regulating?
A recent incident at the FCA involved a visit to a global investment bank by a supervisor who it emerged was not even aware of several high profile investment banking compliance cases. The personnel at the firm being visited would have found out how ill-informed their visitor was very quickly. How could such an individual ever spot anything wrong?
This is a major weakness at the regulator which Sir Hector was aware of but unable to address in any meaningful way. It is not easy to recruit experienced staff when the pay is so poor.
His own working pattern did not always inspire. He worked a four-day week in the office but was working from home (or ‘WFH’) on Fridays. WFH is a familiar acronym inside the FCA but not all members of staff enjoy that privilege. Some of the longer serving or old fashioned senior managers do not approve of such an attitude and do not permit regular WFH arrangements for their junior staff. WFH is popular - it certainly avoids the hike into the office and is hardly likely to contribute to stress, rather the reverse. Presumably, WFH was not possible at Barclays which might have amounted to a significant change in working arrangements for Sir Hector.
After Sir Hector became the FSA chief executive he appointed Sally Dewar to succeed him as the managing director of the markets division. She was WFH on Wednesdays. So on only three days a week were the two physically present in the office on the same day.
Famously, an FSA chairman rang a member of staff who was WFH only to be told by the individual’s wife that he was cutting the lawn.
Also, on his tours of the floors within the FCA building Sir Hector would hand down a management-speak message such as “meetings are for decisions”. For those assembled it was not so clear what decision was being reached in that meeting.
Some details of his private life were laid bare in the court case he brought when he was selling the family house in 2007. The buyer signed a contract and paid a small deposit but failed to complete. The agreed price was £3.6m but after the sale fell through the house was sold for just £2.8m and so Sir Hector sued for the difference in price plus the marketing costs plus interest plus £795, the cost of the gardener for the “organic garden”.
The position of Barclays is simple. They need to replace what they have lost as quickly as possible. The job will not be a walk in the park or an opportunity for WFH. It will not be easy to manage compliance in an environment that requires a major shift in culture.
Andrew Hampton is a former investment banker
