As much as I would have liked to have seen the Bob Diamond testimony before Parliament yesterday (a previously booked flight ruled that out), I should probably consider myself lucky. Comments by readers and tooth-gnashing reports from the British press indicate that Diamond is an apt student of the well honed CEO practice of shirking responsibility and shameless denials. Those strategies go a long way in stymieing efforts to get insight, at least in the setting of a legislative grilling. Some of it is the time constraints on each interviewer: they can only go so long before they have to turn the mike over to a colleague. I’d love to see a real prosecutor, with the luxury of time and the ability to do serious discovery before deposing executives, go after some of these fearless leaders.
The most theatrical moment of the day appears to have been when MP John Mann went full bore into Diamond. I’m expecting this bit to make YouTube, but this live blog account from Scotsman gives a decent feel (Guardian’s live blog interspersed tweets from other journos, which gave multi-dimensioned coverage, similar to having multiple talking heads at a sporting event):
4.25pm: Labour MP John Mann decides to pile in. He asks Mr Diamond whether he knows the founding principles of the Quakers who first set up Barclays? Mr Diamond looks at him like he’d like to put him in a mincer. “Well I can tell you and tattoo them on your knuckles,” says Mr Mann. “Honesty, integrity and plain dealing,” declares Mr Mann. Mr Diamond hits back and says that honesty, integrity and plain dealing sums up the way he did his business.
4.38pm: John Mann has a good rant at Mr Diamond’s claim that he only found out about the rate fiddling a month ago. “You’re not even asking questions internally. Either you were complicit or you were grossly negligent or you were grossly incompetent.”
Then Mr Mann asks why Mr Diamond doesn’t donate his £20m bonus to Shelter. Mr Diamond replies that he feels he and the management team did a good job in rooting out the wrong-doing at his bank.
The internal inconsistency was there for all to see: I Bob Diamond fully deserve my lofty pay. No, there was no problem here, Barclays has a great culture. That Libor problem? Oh, it was only 14 traders and their “immediate supervisor” (don’t you love that expression? It conjures up an image of a store or factory floor boss, the sort of guy in short sleeves who wanders around to keep everyone on their toes, as opposed to the sort it probably was, a managing director pulling down at a few million quid). Oh yeah, and the compliance guys missed it too.
We have the prima facie evidence of the actual rottenness in Barclay’s culture in the very person of Bob Diamond. Fish rot from the head. Diamond has clearly, deeply internalized the “heads I win, tails you lose” finance view of the world. Barclays not only took advantage of special facilities during the crisis and continued super low rates now, it also enjoys a “too big to fail” funding advantage. Yet Diamond has been one of the most flagrant in showing contempt for the broader public to whom he owes his lofty pay. As we wrote in “Barclays’ Bob Diamond to Non-Bankers: Drop Dead” in January last year:
The reality is that banks can no longer meaningfully be called private enterprises, yet no one in the media will challenge this fiction. And pointing out in a more direct manner that banks should not be considered capitalist ventures would also penetrate the dubious defenses of their need for lavish pay. Why should government-backed businesses run hedge funds or engage in high risk trading, or for that matter, be permitted to offer lucrative products that are valuable because they allow customers to engage in questionable activities, like regulatory arbitrage or tax evasion? The sort of markets that serve a public purpose should be reasonably efficient and transparent, which implies low margins for intermediaries.
But note the clever positioning by Diamond, per the Financial Times
Mr Diamond acknowledged the public anger towards bankers and the emotion surrounding pay, and admitted he wished he could “make the issue of bonuses go away”.
But he argued it was not possible to stop paying bonuses without severe consequences for the business and the broader banking sector and said it was now time for the bonus debate to move on.
Yves here. This is priceless. Diamond wants the “issue”, meaning the controversy, over bonuses to go away. I’d love to see the “severe consequences to the business” of forcing lower pay on incumbents. Yes, a very few might find be able to raise money from investors. But as John Whitehead, a former co-chairman of Goldman said in 2006 when hectoring Lloyd Blankfein over the firm’s “shocking” pay levels, the firms could afford to lose them. But Whitehead missed the dynamic of the post-partnership era. The partners had every reason to keep pay in line; it was their capital at risk, after all, and overcompensating staff reduced their take. Now the top brass is aligned with the interest of the producers in taking as much from any source they can.
Back to the Financial Times:
“We can’t just isolate bonuses and assume it won’t have consequences,” he said.
“The biggest issue is putting the blame game behind us. The time for remorse is over.”
While Mr Diamond said he would “show any restraint possible” on bonuses, he would not commit to waiving his own personal award, as he and rival bank chief executives did last year.
Yves here. If you believe that, I have a bridge I’d like to sell you
Fast forward to Diamond’s Parliament star turn. So his past statements have made clear that he is pretty deficient in any sense of responsibility and he confirmed it again today, with his sadly not unusual view that CEO, like finance people generally, get the benefits of all good things, like bull markets, rising leverage levels, and dumb luck, but never never have to be responsible for failures in oversight, save saying they are sorry (remember, not only has dog-in-the-manger Diamond made it abundantly clear he is not giving up his pay, he’s apparently seen as likely to land a new job pronto. Nothing like failing up, or at worst sideways).
And the MPs managed to dent Diamond’s efforts to defend Barclay’s culture. An exchange with Teresa Pearce, per the Guardian:
Q: You said in February 2011 that the time for bankers to keep apologising was over. Do you still think that?
Diamond jokes that he would like to avoid the question.
Q: You said you were shocked by this behaviour. Yet you have spent your career in banking. Other people were not shocked. Why was this?
Diamond repeats his point about Barclays being an amazing place.
We’ve got that, says Tyrie.
Pearce says it sounds as if Diamond does not really know Barclays.
Andrew Tyrie pointed out that the FSA had raised red flags about Barclay’s culture four months ago, which left Diamond on the back foot, claiming that the FSA approved of the “tone at the top.”
John Gapper of the Financial Times focuses on an issue that this blog and others have raised, that what is really at issue here is that the predatory values of traders now pervade the industry, leading incumbents to defend them as normal and necessary. This leads inevitably to “the devil (the competition) made me do it” defense:
Diamond claimed he’d found out about “the full extent” of the Libor bid rigging only a month ago, and he also said the bank spent £100 million investigating it. Huh? The FT had been writing about this issue since 2007. This says that Barclays refused to do a decent job of internal reviews and that (presumably) Diamond found out how bad things were only via his costly external assessment. a month ago. It points to either a considerable shortfall of internal controls or a deliberate management policy of “we know about this but we’ll pretend we don’t,” meaning key parties were careful not to commit incriminating information to e-mail or other written form. Neither reflects well on Diamond.
Diamond’s disconnectedness, whether genuine or clever posturing, sounds like the view from Versailles, circa 1780. As Andrew Sparrow of the Guardian observed,
I was reminded of that famous quote in Disraeli’s novel, Sybil.
Two nations between whom there is no intercourse and no sympathy; who are as ignorant of each other’s habits, thoughts, and feelings, as if they were dwellers in different zones, or inhabitants of different planets.
Disraeli was talking about the rich and the poor. But he might have been talking about bankers and non-bankers.
There was a brief period, from October 2008 to (roughly) February 2009 when top bankers were frightened and humble. Unfortunately, it will likely take a crisis of the scale just past to engender some humility. And if the public and regulators do not get the will, soon, to curtail their looting, they are likely to engender a meltdown sooner rather than later.