“In simple terms this crisis was caused, not because many bright people did not see it coming, but because there has been a completely inadequate ‘separation’ and ‘balance of powers’ between the executive and all those accountable for overseeing their actions and ‘reining them in’ i.e. internal control functions such as finance, risk, compliance and internal audit, non-executive Chairmen and Directors, external auditors, The FSA, shareholders and politicians.
As I recently commented on the BBC Money Programme called HBOS: Breaking the Bank ‘Being an internal risk and compliance manager at the time felt a bit like being a man in a rowing boat trying to slow down an oil tanker.’ If we could turn that man in the rowing boat into a man with a tug boat or even the Pilot required to navigate big ships into port, I feel confident that things would have turned out quite differently.
When I was Head of Group Regulatory Risk at HBOS, I certainly knew that the bank was going too fast (and told them), had a cultural indisposition to challenge (and told them) and was a serious risk to financial stability (what the FSA call ‘Maintaining Market Confidence’) and consumer protection (and told them).”
“To mix a few well known similes / metaphors / stories, the current financial crisis is a bit like the story of the Emperor’s new clothes. Anyone whose eyes were not blinded by money, power and pride (Hubris) who really looked carefully knew there was something wrong and that economic growth based almost solely on excessive consumer spending based on excessive consumer credit based on massively increasing property prices which were caused by the very same excessively easy credit could only ultimately lead to disaster. But sadly, no-one wanted or felt able to speak up for fear of stepping out of line with the rest of the lemmings who were busy organising themselves to run over the edge of the cliff behind the pied piper CEOs and executive teams that were being paid so much to play that tune and take them in that direction.
I am quite sure that many many more people in internal control functions, non-executive positions, auditors, regulators who did realise that the Emperor was naked but knew if they spoke up they would be labelled “trouble makers” and “spoil sports” and would put themselves at personal risk. I am still toxic waste now for having spoken out all those years ago! I would be amazed if there were not many executives who, if they really examined their consciences closely, would not say that they knew this too.
The real problem and cause of this crisis was that people were just too afraid to speak up and the balance and separation of powers was just far too weighted in favour of the CEO and their executive.”