Barclays Bank is one of the leading banks in the world with operations in Europe, Asia, North America, and Middle East as well as in Africa. The current financial crisis in developed countries of the world has further aggravated the situation for the financial institutions specially and Barclays is not an exception. It is because of this reason that it has been often argued that there must be a comprehensive corporate governance code for the financial institutions. (Kalbers, 2009).
Historically, it has been observed that the Britain’s Corporate Governance movement have been hijacked by top accountancy firms as in order to maximize the value for shareholders, other stakeholders such as employees, customers as well as community has been neglected by the institutions in UK.(Cassidy, 2003). The environment of today is relatively more volatile as compared to the environment of yesterday because of the perceived threats faced by the global financial system. It is critical to note that in such an environment, the overall competitive pressures are mounting on many financial institutions including Barclays to maintain their positions within the market. The current financial crisis have resulted into the decline in the loanable funds to the consumers therefore generally there will be drastic decrease in revenue as well as profitability of Barclays Bank. The recent results however, indicate that the firm has been able to withstand the pressures and the results of the first half of 2009 has shown considerable improvement by the bank.
One of the most important challenges faced by the Barclays Bank is to keep its dominance over its traditional markets. Though the bank has been able to meet the current global financial crisis, its ability to service the market has reduced due to overall external economic conditions. Firm therefore needs to revise its internal control mechanism in such a manner that it successfully withstands external challenges. Apart from this, it has to further tap new markets because its concentration in UK limits its potential and makes it vulnerable to risks. The declining interest rates as well as the increased costs are another important strategic challenge that is being faced by the Barclays. In order to cope, Bank of England has significantly lowered the interest rates whereas the overall cost structure of the banks have remained the same which therefore resulted into decline of banks’ profitability. This also indicates the UK’s financial institutions are still finding it hard to achieve a balance between risk and reward and subsequent development of corporate governance mechanisms which can help achieve organizations this aim. (Gentle, 2009).
In order to overcome these strategic challenges, Barclays has to strengthen its internal controls and procedures. The non-existence of checks and balances on the activities of the managers provide incentives to the managers to engage into such activities which are potentially not in favor of all stakeholders. Thus the bank shall also improve its disclosure information to its shareholders so that more and more information is presented to them. The focus shall also be on entering new markets in order to diversify the risk across different markets so that the overall risk profile of the bank is rationalized.
BOARD AND BOARD COMMITTEES
|Hypothesis 1– In theory the Board acts as a fulcrum between the owners and controllers of a corporation. The reality is less certain (Monks and Minow, 2008).|
Group Chairman at Barclays is Marcus Agius.
Positions held by Mr. Agius outside Barclays
- Senior Independent Director at BBC’s Executive Board
- Trustee to the Board of the Royal Botanic Gardens, Kew
- Chairman of the Foundation and Friends of the Royal Botanic Gardens, Kew
Obviously, the connections that one might gain and maintain through such a powerful appointment in an outside company, especially BBC, are not without merit for the Barclays chairman, and Barclays itself. However, it can be argued that, even though Barclays and the BBC are not direct competitors, Agius’ decisions could be biased by his double appointment.
Mr Agius’ accreditation in Business World
Before accepting the position at Barclays, Marcus Agius had worked as Chairman of BAA plc until 2006, and he had spent 33 years working for Lazard.
|Miles Costello, 2008– While he was at Lazard, cultivating connections in some of Britain’s top company boardrooms, Mr Agius witnessed the conversion of the bank from a blue-blooded advisory club owned by its partners into a thoroughly modern company listed in America. (Times Online)|
There is no doubt that the skills that Mr Agius acquired and honed while working for Lazard are the ones that are helping him put Barclays in a leading position in the banking world. However, such a long term in a company is bound to create personal, professional and emotional attachments that can have a great influence in one’s way of thinking.
Possible dependence of Mr. Agius
Marcus Agius is married to Katherine, daughter of Edmund de Rothschild, of the famous banking family. Having such close ties to direct competitors of Barclays means that Mr Agius can gain access to knowledge that might not be available to outsiders. But then again, it could act as a great influence in some of his decisions (Times Online, 2009).
Influence of Rothschild family
Mr Agius‘ has become a relative to Nathaniel Philip Victor James Rothschild, better known as Nat Rothschild. According to James Kirkup (Telegraph, 2008), in 1994, after being thought of as the black sheep of the Rothschild family, and having led a life of “extravagant parties” and “active social life”, Nat Rothschild decided to pursue a career in finance. He got employed by Lazard, in a time when Mr Agius held a very powerful position.
Nat Rothschild has now moved on to become co-president of Atticus, a hedge fund with about £10 billion under management. Marcus Agius was appointed Group Chairman of Barclays on January 1st 2007. In the same year Atticus “ flexed its muscles” in dramatic fashion when it built up a stake in Barclays.
|Peter Drucker– Whenever an institutions malfunctions as consistently as boards of directors have in nearly every fiasco of the last 50 years, it is futile to blame men. It is the institution that malfunctions (Monks and Minow, 2008)|
The Group Chief Executive of Barclays is John Varley, while the President of Barclays is Robert Diamond. Mr. Diamond holds another position in Barclays as Chief Executive of Investment Banking and Investment Management and, since 3rd November 2009, he is also a Chief Executive of Global Retail and Commercial Banking.
|Grant Rigshaw, 2008– When John Varley was appointed chief executive of Barclays, many in the City gossiped that Bob Diamond would quit within months. Instead, Varley and Diamond appear to have struck up a constructive, although at times uneasy, partnership (Times Online)|
Since taking over, Mr Varley has generally granted Mr Diamond’s requests for extra resources to expand the investment bank – in spite of many analysts calling for restraint. Even so, the decision to keep Mr Diamond on a loose leash has so far paid off. The business has become one of the UK’s few success stories in investment banking (Chris Hughes, FT, 2008).
It is obvious that the dynamic between these two men is very important for the prosperity of Barclays. Both are dominant and strong personalities, and it is formidable that they have found ways to work together in a very profitable –thus far- way
Frits Seegers’ Resignation
Despite Frits Seegers’ success within Barclays he has officially resigned from his Chief Executive of Global Retail and Commercial Banking position in Barclays on 3rd November 2009 due to some unknown conflicts with Mr. Agius. Even more power is handed to relentlessly shiny Bob Diamond, which is starting to raise concern (FT, 2009). This incident proves that some intrigues are going on in the boardroom, which is closed from the public and might create a shadow of doubt about Barclays Corporate Governance.
Key Barclays Players
|Deputy Chairman||Richard Broadbent K. C. B|
|Finance Director||Christopher Lucas|
|Chief Executive of Global Retail and Commercial Banking||Bob Diamond|
Other Board Members
- David Booth
- Sir Richard Broadbent
- Leigh Clifford
- Fulvio Conti
- Professor Dame Sandra Dawson
- Sir Andrew Likierman
- Sir Michael Drake
- Stephen Russell
- Sir John Sunderland
- Patience Wheatcroft
Most of these members have various external appointments, and most are, or have been, part of other companies’ boards as well. Their loyalty and attachment to Barclays in particular is a matter of discussion. No-one can have a company’s best interests exclusively in mind when they are also a part of various other companies. Especially when the aforementioned ‘other companies’ are in many cases direct competitors of Barclays.
Patience Wheatcroft’s incompetence
The board members of Barclays are all well equipped with knowledge and experience in the financial sector. However, the same cannot be said for board member Patience Wheatcroft. According to the Barclays Annual Report for 2008, Mrs Wheatcroft has had relative business experience only in the past 2 years. Until 2007 she had been working as a newspaper editor. It is clear that Mrs Wheatcroft brings to the board fresh ideas and perspectives. Her lack of experience however may prove detrimental in such a demanding appointment.
There is also a lack of indication of Board’s involvement in Barclays’ decision making processes. Hopefully, it is not the case similar to Lord Boothby, former Tory MP, description of his experience with the board: “No effort of any kind is called for” (Monks and Minow, 2008).
However, in terms of time, directors dedicated over 100 hours annually for Barclays Group for the past two years as a result of Financial crisis. This might have influenced the groups overall performance in a positive way as Barclays being among few financial institutions that remained profits during this period.
|Hypothesis 2– Lipton, Rosen, Katz, and Lorsch suggest that managers cannot be effectively overseen by directors due to lack of time dedicated to it. At least 100 hours annually on the job is needed (Monks and Minow, 2008).|
|Hypothesis 3– Officers run the processes under the systems of checks and balances provided by the board of directors and shareholders. All three groups acting in their interest would maximize the profit and benefit the economy and society as a whole (Monks and Minow, 2008).|
|Hypothesis 4– Investor’s ultimate desire is to have stock freely transferable, sell at a low rate, and to have limited liability. This loosens the connection between ownership and control (Monks and Minow, 2008).|
According to Reuters, as at 20th of October the Barclays’ main shareholders are as follows:
- Qatar Holding holds 7% of the capital
- Challenger, an investment vehicle owned by another member of Qatar’s royal family, owns 2.8%
- China Development Bank has 2.3%
- Sumitomo Mitsjui Banking Corporation, a Japanese bank, owns 1.5% of shares.
- Temasek Holdings, which belongs to Government of Singapore, holds 0.6%
Barclays’ shareholders analysis
|Hypothesis 5– The investors will want to sell their shares at its peak value and managers want stability in the longer term. Unintentionally, the growth of institutional investors reintroduced stability in stock ownership (Monks and Minow, 2008).|
As described above, Barclays has high chances of enjoying stability as its main investors are institutional. On the other hand, investors like these, big and powerful enough, are able to influence Barclays’ strategic decisions in favour of their own interests and priorities, which might cause trouble to the bank at some point. Moreover, Barclays’ main investors are Eastern institutions- this to some extent may not play as Bank’s advantage taking today’s geopolitical trends into account.
Reuters reported that in the mid October 2009 Qatar Holding had sold 3.5% of Barclays shares for 615 million GBP. The sale did not loosen Holding’s position as a major shareholder, though.
|Edward Jay Epstein– Merely selling shares is analogous to political refugees leaving a dictatorship country. While it solves their personal problem, it doesn’t end there and even weakens the economy and society (Monks and Minow, 2008).|
The problem Barclays faces with a large amount of shareholders is similar to every large PLC- the extent to which shareholders’ liability is limited. The Group tries to involve their investors in the bank’s decisions as thoroughly as they perceive possible. Shareholders on their behalf, seem only to reap the rewards from corporations’ performance neglecting any responsibilities.
|Louis D. Brandeis (former US Supreme Court Justice)- There is no such thing as an innocent purchaser of stock. If one takes high yield he is responsible for the corporation. He is not socially innocent. He accepts benefits of a system and is responsible for that firm to contribute to public welfare (Monk and Minow, 2008).|
Executive remuneration schemes
|Hypothesis 6– A strong link between performance and bonuses should be visible (Monk and Minow, 2008).|
A clear indication of an effective remuneration scheme practice is that Robert Diamond had amassed Barclays’ shares worth over 68 million GBP in 2007 (Financial Times, 2007). This proves director’s trust in Barclays’ overall performance as well as his direct interest in bank’s sustainability.
|Graef Crystal- Boards that restricted stock grants do not think share value will go up (Monk and Minow, 2008).|
Crystal’s assumption is supported by data of companies that made these restrictions. He also concluded that compensation plans should influence stock-picking processes by sophisticated investors (Monk and Minow, 2008).
Compensation Committee of Barclays consists of 5 people, two of whom are also non-executive directors.
- Marcus Agius- Chairman, Chairman of Corporate Governance & Nominations Committee and Member of HR & Remuneration Committee
- Richard Broadbent K. C. B.- Deputy Chairman, Chairman of HR & Remuneration Committee, Chairman of Risk Committee and Member of Corporate Governance & Nominations Committee
- Richard Clifford- Independent Non Executive Director, Member of HR & Remuneration Committee and Non Executive Director of Barclays Bank PLC
- John Sunderland- Non-Executive Director, Member of Corporate Governance & Nominations Committee, Member of HR & Remuneration Committee and Non-Executive Director of Barclays Bank PLC
Chairman and Directors of Barclays did not receive any bonuses for the year. That put their combined total remuneration at approximately 5 million GBP. This is significantly lower than their remuneration for the previous year that reached the amount of 31 million GBP. The sum’s major chunk got to Robert Diamond which, added to his salary, was 21,125,000 GBP (Barclays Annual Review, 2008).
However, the tactic of withholding the bonuses is unlikely to be continued through to this year. Richard Wachman (Guardian, 2009) reports that Barclays is under fire from several of its big shareholders who are questioning the huge pay-outs to staff at its fund management arm BGI following the sale of the business last week to BlackRock for $13.5bn. For instance, Mr. Diamond is in line for a payout of £22m, while the arm’s chief executive Blake Grossman will collect around £55m under the terms of the deal announced last week.
If shareholders are not satisfied with compensation plans it may be concluded that there is not much balance between performance and pay. The pay-outs have not been high during the crisis, of course, but this generosity of Executives might have been triggered by an attempt to avoid scandals similar to AIG.
Nevertheless, Barclays agreed to accept limits on bonuses at the recent G20 summit.
Internal and external audit
|Christine A. Mallin 2007– One of the key roles of auditing is acting independently from the executive, to ensure that the interests of shareholders are properly protected in relation to financial reporting and internal control.|
The Board Audit Committee is a sub-committee of the Board of directors of Barclays PLC. The Committee currently comprises four independent non-executive Directors, including one such Director who is determined by the Board to be a ‘financial expert’. The Committee usually meets six times a year with senior management. The lead audit partner of the external auditors, Price waterhouse Coopers LLP.
- Risk Assessment
- Internal Controls
- Financial Statements
- External Auditors
- Regulatory Reporting
- Internal Audit
- Regulatory Compliance
- Capital Raising
- Management Responses
- Committee Effectiveness
Sarbanes-Oxley and Barclays
According to Sarbanes-Oxley Section 404, CEO’s and CFO’s must sign the financial report. Although, the law works only in the U.S. it would have been more assuring in a sense, if Barclays had followed the requirement. However, statements do not show any evidence of Board’s formal approval.
The same section of Sarbanes-Oxley requires that no insiders are involved in the committee’s processes. Barclays Group fully meets this requirement by assigning four independent non-executives to the role.
One recent change in the Barclays board was the resignation of Sir Nigel Rudd in January of 2009. Tensed relationship between him CEO John Varley is suspected to have triggered it. Rudd is known to be scrupulous on auditing issues and may not have been entirely happy with the way in which Barclays has been handling its disclosures to the markets. He may have expressed some of these concerns to potential new members of the Barclays board (Brummer, A., Thisismoney, 2009).
It is obvious that these issues are very important for the well standing of a corporation as big as Barclays. As a result of this disagreement, Barclays not only lost a valuable employee, but it also lost some of its credibility in the eyes of the public.
Corporate social responsibility
As a large, long-standing global banking corporation, Barclays Group has a wide array of stakeholders, basing in 60 countries with over 800 global branches and 48 million customers; it has a significant impact on the global world and environment, which the recent financial crisis has strongly emphasised.
- Unite represents more than 25,000 Barclays workers
- 2100 job redundancies to be made in investment banking and investment management departments
- On January 2009, Barclays closes final salary pension scheme to 18 000 long standing employees. Employees threaten pension strike ballot, but so far this has not materialised
- Hundreds of customers have seen half their life savings wiped out after Barclays ‘misled’ them into gambling their money on risky investments
- Barclays is the most complained about bank in the UK
Although, considering Barclays has 22m UK customers, this is a very small proportion of complaints and as the bank retained its customer base it would appear that the relationship is not too dire.
|Hypothesis 7– Corporate Governance observers have suggested that banks’ poor investments are due to simple reasons; all they care about is collecting fees as a trustee. They don’t take part in corporate development, and in the end its other people’s money they gamble with (Monks and Minow, 2008).|
Barclays investment failure may be characterised as presumed in Hypothesis 7.
- Barclays remained profitable during 2008-2009 and did not have to resort to government aid
- shareholders’ pre-emptive rights were waived in the Nov 2008 £7bn deal with the Middle East, a move that was ‘reluctantly approved’ as the best of worse alternatives
Not very positive, waiving of rights has seriously de-valued shares, Barclays should not have had to resort to even this measure.
- Introduced measures in 2007 to ensure that suppliers had suitable corporate responsibility policies, and screened £1.5bn of its supplier spend in 2007 as a result.
- Working to establish a sustainable supply chain steering group
- Recent fine by FSA regarding lack of transparency
- Cooperation with UK Government over 2008-2009 helped to avoid government bailout, or partaking in Asset Protection Scheme
Considering parliament could have pushed measures on Barclays, it implies that it deemed the company reliable and that the relationship is reasonably strong.
- Policy of contributing to local communities in which they are based (local hospices, kids’ sports facilities)
- Supports financial inclusion and micro-finance schemes
- Barclays faced criticism for continuing operations in Zimbabwe
- Barclays UK became 100 per cent carbon-neutral in 2006, and is working towards becoming so internationally
- Are actively involved in many environmental projects (Storm Shelter, SolarAid, BICC)
- Work with suppliers, customers and colleagues to reduce impacts on the environment.
However, GHG emissions reporting is dubious – the verification statement of carbon emissions is qualified as 63% to a reasonable level of assurance and 37% to a limited level where there is 100% or near 100% data presented (E. Cohen 2009).
Overall, Barclays’ relationship with stakeholders is acceptable, and they have fair well relative to its competitors. The positives lie in relationships with the government, local communities, and the environment; the same cannot so easily be said for employees, customers and shareholders.
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