Report on "A View from the Top" talk given on 24 March 2010
In this the second of a series of talks under the umbrella title "Looking to the Future", it fell to Sir Sandy Crombie, until recently the CE of Standard Life and now the Senior Independent Director at RBS, to share some thoughts with us. He was interviewed by Hugh Donald, Chairman of the law firm Shepherd and Wedderburn.
The event was hosted by Baillie Gifford and business matters is very grateful to them for their hospitality and organisation.
The evening was marked by insightful comment and discussion on a wide range of topics relating to the world of business in the current economic difficulties and where this world might progress to over the coming months. As a listener I found it both enlightening and challenging to unpack what was said and to apply it to the current business scene in Edinburgh and beyond.
As Sir Sandy addressed the very first question of "What is the view from the top really like?" it quickly became clear from his comments that, from whatever level or angle we look at the situation, it can be described quite bluntly as "a mess". Tempting as it is for us as individuals to find someone to blame, when we stop and reflect on things, we soon realise that all those involved in recent events, from national and international Governments, and down through Regulatory Authorities to individual companies, failed to stop a situation developing which has adversely affected the whole world in one way or another, despite systems being in place to "prevent" such happenings. We have to accept that we are where we now are. The idea that we should look ahead rather than back struck a chord. Like many others, I find myself asking: "what needs to change in order to prevent this happening again?" It seems we have a real opportunity. Yes, there is the need for much hard work, but the thought came through clearly from Sir Sandy's remarks that we can, and should, emerge stronger from the process of tackling the need for change.
Thinking a little deeper as to why we have got into the mess we are in, there is no, one, isolated cause. Elements of individual and corporate carelessness and also greed have contributed, it would seem, and so too though has the prevalence of "easy credit" which has been available to us all. This helped feed a "bubble" which, while not so easy to see while it was expanding, is certainly visible with hindsight - after it burst. The exhortation to work to a value system which does good to the customer and at the same time makes money was one with which I could identify and rise to. It was also good to be reminded that that all individuals and companies take risks in investment in order to progress. Indeed, Sir Sandy commented that Corporate Governance is not about creating a zero-failure regime. It is when these risks, either on a personal or corporate level, become too big by half that the consequences of any resultant failure can become massive, as seen recently with the UK banking system. I found the analogy given of a pendulum helpful: when in steady controlled motion, it regulates the mechanism it is powering; but when it swings wildly, the risk of the clock stopping is much heightened.
In this regard, it was interesting to reflect on the role of non-exec directors, and to recognise the responsibilities they have. It is both challenging and reassuring to think that the opportunity is there for such directors to resign and publicly "call to account" a company where they are not happy with the degree of risk being taken.
Inevitably, bankers' bonuses came up. It is a subject guaranteed to produce a reaction, but it was instructive for me to see these bonuses in the context of the existence of a free market in which companies have to appropriately remunerate highly talented individuals in order not to lose their services. While some individual bonuses may seem extreme, the Government has, in the end, recognised that a free market does exist and should not be eliminated. Each of us as individuals needs to exercise control of how "mercenary" we are prepared (or determined) to be and to think of ourselves and our remuneration in a wider context.
Sir Sandy took some time to reflect on the two companies with which he has been most associated, both of whom have had difficulties in recent years. It was illuminating to understand a little more about RBS, a bank which, while largely healthy, had a portion of its business which was considerably less healthy. The need for control over all parts of a business was highlighted as essential. A particularly vivid image I came away with was of getting onto a horse and kicking it into action without having, or holding, reins to control it. Similarly, the simple analogy of a business trading in perishable goods (carrots!) was helpful - it can over-reach itself and end up with a warehouse of perished goods.
Thinking back to his time with Standard Life, Sir Sandy gave us an insight into the challenging period some years ago when, in order to turn the company around, difficult decisions had to be taken and strategies implemented which were profoundly unsettling, indeed worrying, for many of the employees as they contemplated an uncertain future. I was left in no doubt that the pain of implementing those changes had been felt throughout the organisation, including by the Chief Executive himself, but that the leadership given had encouraged all to take responsibility for turning the ship around. How? By being creative and focusing on what was going to give customers what they required at a price that rewarded the company properly and thus strengthened its overall position. After a process in which the number of employees was reduced significantly over 6 years, the restructured organisation nonetheless still has a highly motivated staff and conducts a sound business. A recent analyst comment that, in "interesting" times, "Standard Life is reassuringly dull, but rock solid" was powerful witness to the success of the changes adopted.
Hugh Donald posed a question about leadership styles. I appreciated Sir Sandy's comments in response. He used a sporting analogy which I found helpful, citing his time as captain of the school rugby XV. As a prop forward, he was unable to fulfil the captain's role by being out in open play, reading the game and directing the moves, simply because all too often he would have his head stuck in the scrum. So how did he lead his team? He had to spend time before each game analysing the opposition, thinking through how to succeed against them, and then outlining a game plan to the team - the objectives of the encounter and each individual's role in bringing to the game their strengths, commitment and full participation. In a business context he emphasised the need to help people look to the longer term objectives, perhaps 5 years out, painting a picture of where the organisation can go, enlisting everyone's buy-in and encouraging each person to give of their best creativity and effort. Sir Sandy's style of envisioning, involving, encouraging and winning people round rather than being directive of them came across strongly to me.
Reflecting further on his time at Standard Life, Sir Sandy recounted how from the very start he had felt neither highly personally ambitious nor competitive vis-à-vis his colleagues. However, he strongly believed in not letting anyone down - starting, interestingly enough, with his parents. He found he had an ability to identify where operating systems and practices could be improved to prevent rework or duplication of effort. It was this propensity which led to his rise through the company to the Chief Executive role - as he put it: "in a 37 year apprenticeship". Knowing the company inside out meant that he was able to apply his experience to the difficulties faced by Standard Life in the early years of this decade, and it became clear that he means to carry all that experience into his current role with RBS.
In response to the question "Is leadership something which you are born with or can it be made, and where will leadership in Scottish business come from?" Sir Sandy quoted one of his favourite lines from the poet Hugh MacDiarmid. In his poem A Drunk Man Looks at the Thistle, he says, "to be yersel's, and to make that worth being, no harder job to mankind has been gi'en." In essence, we should all find out and accept who we are, and go on to make our contribution worthwhile. Leadership styles may vary but inherent in all of them should be giving people vision and encouraging them to work in teams for the greater good. Leadership can be displayed at all levels, for example, older, more experienced members can inspire younger, newer members of the team.
The case for Edinburgh's future as a leading global financial centre was discussed and it was clear that Sir Sandy feels that we do have companies in Edinburgh who are achieving and even setting global standards in limited areas. However, that does not necessarily lead to them being "global leaders" in the normally understood, broad sense of that term. We should not necessarily aspire to create global leaders as such, but we can most certainly achieve global standards. In fact, if we do not aspire to, and achieve, global standards then other businesses will "eat our lunch" and we will find little or no market for our products and services. By narrowing our focus to certain specialisms, honing our skills and not investing in the mediocre but rather investing in excellence, we can maintain a good ongoing position.
The last topic aired before Hugh Donald opened the forum up for audience questions was whether or not greater regulation going forward would provide the solution, or should more emphasis be placed on breaking up the banks or indeed on encouraging the adoption and use of "value" statements. Sir Sandy encouraged us to recognise that in the past many different businesses had worked under identical sets of regulations but had achieved different degrees of success or failure. I found helpful his summarising comment that "we need more emphasis on human dynamics in the boardroom". I particularly appreciated the analogy of the super-tanker which, although carrying a massive quantity of oil, is designed such that if one compartment should fail then the entire vessel is not lost. It is possible to have giant tankers, but made up of hermetically sealed separate compartments. Similarly, it is possible to have really big banks. The idea of restructuring banks and businesses "in sealed compartments" is one which merits serious consideration.
Audience questions ranged over the topics of "Global Digital Banking" to "coping with major change". Sir Sandy emphasised the need to develop and capitalise on the potential of technology to fully deliver "real time" banking and indicated that this was something which is being actively addressed by the major banks.
The final thought which I was left with from the evening centred on remaining positive through change. The recent experience of Standard Life was again the example. Many people had been uncertain and worried about their future. Top management, by remaining cool and thinking through and analysing the medium to long term strategy, took people with them through tough times to emerge positively at the end of the major change process.
It was an illuminating and absorbing evening. We were all struck by how real, up front and also humble our speaker had been. May he go on to make an ever greater contribution to our local and national commercial and economic life.
for business matters