Virtuous veterans hard to find in British banking

Reuters
File photo of a sign for Bank Street and high rise offices in the financial district Canary Wharf in London
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A sign for Bank Street and high rise offices are pictured in the financial district Canary Wharf in London in this October 21, 2010 file photo. REUTERS/Luke Macgregor/Files

By Matt Scuffham

LONDON (Reuters) - Calling all senior, experienced British bankers with a clean charge sheet and political nous. There might be a chairmanship role awaiting.

With three of Britain's four major banks expected to hire new chairmen - and they are all likely to be men - within the next two years, headhunters and industry insiders say there is an acute shortage of suitably qualified candidates.

Perhaps only six to 12 credible figures could fill the posts likely to be on offer at Lloyds (LLOY.L), Barclays (BARC.L) and Royal Bank of Scotland (RBS.L), making it tough to lure the right person to positions which are crucial not just to the banks themselves but the economy as a whole.

Lloyds is on the verge of appointing Norman Blackwell, chairman of its Scottish Widows insurance arm, as its new chairman, a person familiar with the matter said on Friday.

An ex management consultant with banking experience, political contacts and free of scandal, Blackwell fits the bill.

But for the other banks, finding a virtuous industry veteran is likely to prove difficult, particularly in the wake of the financial crisis.

"There are probably less than a dozen individuals globally that have the right experience to do it," John McFarlane, 66, chairman of insurer Aviva (LSE:AV.), told Reuters. "I do think that a chairman of a bank should ideally have relevant banking experience because of the complexity involved."

McFarlane has been linked to the chairmanship of RBS, where he was an independent director until 2012. But the former banker said he was not interested.

INDUSTRY BACKGROUNDS

The dangers of employing a bank chairman without an industry background have been highlighted by problems at the Co-op Bank, a customer-owned lender which nearly collapsed due to property losses during the tenure of Paul Flowers.

Flowers' banking experience amounted to four years working as a cashier after leaving school. The Methodist reverend has since become embroiled in a drugs scandal, days after an embarrassing grilling in front of lawmakers at which he betrayed a lack of understanding of some of the bank's key financial numbers.

In the last few years, Britain's financial regulators have sought bank chairmen with industry backgrounds, a trend that will be accentuated following criticism of their role in approving Flowers to be Co-op Bank chair in 2010.

Bank also often lack industry experience among their ranks of non-executive directors (NEDs) who might be able to provide backup to an underpowered chairman.

"The real issue is the lack of high quality NEDs," a senior regulator said, speaking on condition of anonymity.

Lloyds Chairman Win Bischoff, 72, said in a speech this month that banks should ensure up to half of their independent directors have industry expertise.

A Reuters analysis of the boards of Britain's biggest banks has shown only a third of independent directors, excluding the chairmen, have direct banking experience.

SANCTIONS AND QUALIFICATIONS

Banking expertise is not in short supply in Britain, a country where the financial services industry employs over 1 million people and accounts for around 10 percent of economic output.

Peter Hahn, a lecturer at London's Cass Business School, said banks and headhunters did not cast the net wide enough when looking for independent directors.

"They look at a very shallow pool," said Hahn, a former banker. "The requirement seems to be largely based on your experience of boards rather than (industry) expertise. Until we can get over that and decide that your expertise is what matters more, then we are going to have this problem."

An additional headache is trying to find someone untouched by the welter of scandal that has led to some of the biggest names in British banking being forced into taxpayer-funded bailouts and left the sector nursing huge bills for misconduct.

Since the crisis, scrutiny of senior bankers has increased with Britain preparing to introduce annual competency tests and jail terms of up to seven years for reckless behavior.

Such restrictions could make it even tougher to source chairmen and other independent directors.

"The more qualifications you require and the sanctions that now hang over people, the harder it is going to be," said one former bank board member, who declined to be named.

Barclays appointed City grandee David Walker as chairman last year, when the bank was shaken by mass resignations following its indictment by regulators over rate manipulation.

Walker, 73, is not expected to remain chairman beyond 2015. Barclays said it had succession plans in place for all of its senior executives.

"You're looking at a very narrow pool of people who have real banking experience and seniority and are untainted," one top London headhunter told Reuters.

POLITICAL KNOWLEDGE

Recruiters have got around the whiff of scandal when hiring chief executives by looking overseas. RBS appointed New Zealander Ross McEwan and Lloyds hired Portuguese banker Antonio Horta Osorio as CEOs.

But candidates for chairmen roles are more likely to be advanced in years and may be less likely to uproot.

For Britain's state-backed banks Lloyds and RBS, a knowledge of British politics and regulation are also seen as key, making overseas hires less likely.

Blackwell, who is set to replace Bischoff early next year, headed up the then prime minister John Major's policy unit from 1995 to 1997 and is a Tory life peer

Philip Hampton, who has been chairman at RBS for nearly five years, had previously said five to seven years was the typical tenure. Industry sources say he is expected to relinquish his role in the next 18 months, although one source with knowledge of the matter emphasized his departure was not imminent. RBS declined to comment.

Elsewhere, customer-owned lender Nationwide has said it is looking for a successor for incumbent Geoffrey Howe, who will retire in 2015.

Possible candidates for the RBS or Barclays positions given their banking backgrounds include John Stewart, 64 chairman of insurer Legal & General (LGEN.L), Richard Broadbent, 60, chairman of retailer Tesco (TSCO.L) and Donald Brydon, 68, chairman of the Royal Mail (RMG.L). None of them could be reached for comment.

John Nelson, 66, chairman of the Lloyd's of London (LOL.UL) insurance market, and Gerry Grimstone, 64, chairman of insurer Standard Life (LSE:SL.), both have banking backgrounds and are also seen as contenders. They declined to comment.

Gus O'Donnell, 61, who was head of Britain's civil service, is the one non-banker cited as a realistic candidate by industry sources. He couldn't be reached for comment.

Martin Taylor, 61, a former CEO of Barclays in the 1990s, had been linked to the Lloyds chairmanship, but said he was not talking to anyone about a new job at the moment.

In an email to Reuters, Taylor said: "I am happy as an external member of the Bank of England's Financial Policy Committee, which both keeps me busy and pretty much rules out dalliance with the financial sector."

(Additional reporting by Steve Slater; Editing by Carmel Crimmins and David Holmes)

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