Standard Chartered: “A failure of franchise”


Standard Chartered Bank is broken. It was breaking up in full view over the past few years, except that it was not in the way that analysts think about banks. The worst is yet to come, but I thought I should write these thoughts down so that events can either confirm or deny my worst assessment.

The weakening of the Standard Chartered franchise offers the most instructive lesson on managing a global financial services business today. The lessons were actually already forthcoming from much that was happening to the other British banks – Barclays, RBS and Lloyds TSB – between the years 2001 and 2009, except that it struck no one to document them for subsequent CEOs to learn from. So, now in walking right into the same puddle, Standard Chartered Bank offers us a refresher course to home in the key points.

Standard Chartered Bank’s problem is what I would call “a failure of franchise”. I have written in the past, in my blog and in other places, about the “failure of leadership”. I had made assertions such as investment bankers do not have a good track record as leaders of commercial banks, because they are led by a very different set of priorities and commercial banks require leaders who are more prosaic in their approach – hands-on, being close to the people and the organic processes and so on.

A commercial bank is a franchise in the real sense of the word, because it depends on resonance from both from employees as well as from the customers. Unlike an FMCG (fast moving consumer goods) or a manufacturing company, it depends so much more on human interaction within the organization rather than top-line marketing or automated distribution processes. Over the years, many a smart person have found out to their detriment that no amount of strategy, technology or massive capital can replace the years of patient franchise building and the repeated drilling with ordinary staff that enables a bank to reach its full potential.

When all is said and done, the failure of Standard Chartered Bank will be a rehash of the mistakes of other banks and other leaders in the past ten years. Bob Diamond’s Barclays. Fred Goodwin of RBS. But it appears that Peter Sands was determined to offer his own experience as the one-stop final statement for the industry to learn from the mistakes of the past decade.

I think there were about six areas where Peter Sands failed his own people, and in doing so, failed the franchise:

1. Industry leaders from Jack Welch to Warren Buffet may have made it sound easier than it sounds, but “management by objective” has some caveats, without which a leader who does exactly what these men have done, can still lead his organization to disastrous consequences. Peter Sands, from the beginning of his leadership at StanChart, had vocalized to the analyst community and internally to his own staff, his management objectives of growing the business by a certain percentage every year, meeting a specific dividend commitment every year and so on. His stated target was to generate 10% year on year growth revenue. There was nothing unusual or clever here. Jack Reed did the same with Citibank in the late 1990s (he targeted ROEs of above 20%). HSBC did that more recently. So do entrepreneurs like Emilio Botin and other entrepreneurs, except that they have such a strong feel of their franchise that they can feel to what extent it can stretch and thin before snapping.

The most important lesson to be learnt from Sands targets-based management style is that even when targets are met, they tell you nothing about how the franchise is coping. Meeting profit target of 10% year-on-year achieved at the cost of something else that can stress the organisation can have disastrous effects. What Sands did not pay attention to was how much his people were going to kill themselves internally to satisfy those commitments.

The difference between Peter Sands and Jack Welch and Warren Buffet was not in the sincerity of the belief that “hiring the best people and leaving them to run things” is an enlightened approach for a CEO. The difference was that Sands does not have that inherent instinct in reading people that a Jack Welch or a Warren Buffet had in knowing that they have indeed hired the best persons in the first place. If anything, the people he now surrounds himself with shows that he has been a poor judge of people with a poor feel of the ground, and was therefore not able to keep that kind of light touch that Welch and Buffet kept on their key people and were still able to achieve their goals.

2. Peter Sands had little appreciation for the DNA that he inherited at Standard Chartered. The Standard Chartered he inherited had an army of plodders, very ordinary but impressionable workers who had been moulded to believe from past crises that they made a difference to the organization. They may not have been what he wanted given his management consulting brain, but they were the only raw material that God would give to him to work with. The bank gave them respectable jobs in an age when the best jobs were with much larger multinationals. The bank gave them a sense of community, both within and with the society they served. The bank was small enough that a simple pilot project in Singapore could easily be transposed to the global business. The organisation had a high number of lifers – employees who had dedicated their whole careers to the organization.

So it was incumbent for Sands to be mindful of the fact that any new person he brought into the organization had that empathy to draw from the inner strength of very ordinary staff. So, bringing in a cold and engineering-type Steve Bertamini to replace a much more flesh and blood Mike Denoma or Philippe Paillart before him, had a profound negative impact on the people who worked in the bank’s global consumer banking business. There was no one thing that Bertamini did that was disastrous, only that he did not give his staff a reason to come to work every morning, that transcended the numbers he wanted from them. Mike Denoma before him had instituted the various social and marketing programmes, including the annual marathons around the world, that gave the franchise an ability to connect with its local community and enhance a brand that its own employees could believe in.

Bertamini hails from a 1990s model of GE style running a business as an aloof set of numbers. The GE culture that includes long conference calls, numbers, numbers and more numbers, a constant revaluation of staff and a constant managing upwards may appear to be results orientated. But contact with the ground is kept light so as not to get personal when it comes to delivering numbers, and after a while, results in a very competitive world do not matter anymore.

I have come to see the GE proposition as one that is dated, going back to the 1990s, when the monoliners were kings in the US. The focus then was superior ROEs by squeezing costs and streamlining processes. It worked well in the credit card business in the US, which in that time was all about delivering industrial quality numbers. Jack Welch and the GE leadership style of running everything by numbers and processes did not allow the business to build newer models based on customer, rather than product profitability. Today’s focus on cross-selling, customer retention and value creation requires so much client contact and testing and learning from so much new technology and social media, that a head of retail who does not understand how to stand with his troops will not get those very same numbers in the way a credit card business in the old days would.

At one stage (maybe in the 2008 period), StanChart was at a pioneering point in terms of consolidating its formidable sales force capability with its channel integration efforts. Both its on-the-ground sales force and the new call centers it was putting in place were seeing results, except that it required considerable thought in aligning the two because the people in the virtual channel were saying that they were originating business for the physical channels and vice versa. This is not something a Steve Bertamini approach was designed to deal with.

Sands could have seen Bertamini’s problems by just spending time with the staff working on mobile banking, social media and other new innovations at the bank that constantly needed to be tried and tested, that they in turn needed leaders who believed in them and trusted them. Not just asking for numbers from far away London or Australia, where Bertamini once operated from because he was never really comfortable with the rough and tumble of Asia.

I am not sure what Peter Sands thought of his other lieutenant, Karen Fawcett. Quite clearly as the boss’s blue eyed girl who ran transaction banking, she ratcheted up the staff numbers right after the 2009 global economic crisis on the boss’s orders to grow that business. I watched as she hired just about anyone available in the marketplace, offering them good salaries, with no concept of cost and income. 1.5 years later, I started hearing from her own transaction banking staff that travel costs were being cut and the very people she hired to travel were being restricted. She then started quietly letting people go. If running her business was akin to flying a plane, Karen was out there in full view, wobbling first to one side, and then to another, struggling to keep it flying if only to meet her boss’s crazy targets.

To be fair, the transaction banking industry itself was undergoing tremendous change in that period. The general media was writing how transaction banking was becoming the new annuity generator in banking, and Sands probably believed the press without understanding this business himself. But with interest rates and borrowing costs falling to all-time lows, the business was to prove elusive. But equally important was the fact that Fawcett was finding it difficult to articulate the transformations taking place in supply chain management and was also not able to take advantage of trade flows like its domestic competitors were able to in each market. Without a strategy and without the money, she was limping on a few cards, like the renminbi flows which was driven by StanChart’s home market, Hong Kong, at great cost to the bank.

Now to put a clueless Karen who almost destroyed transaction banking to take over the core consumer business for which she has even less of a clue, I can only say is something so dangerous that no board should allow their CEO to do to. Consumer banking in the core markets brings in excess of 30% of the organisation’s net income. Whatever other sins the organization has, this would have the effect of protecting the bank from any near death experience, as it did for Citibank. Sure, it is sheer hard work finding the best possible consumer banking talent to secure this business, give it a breath of fresh air and launch the remedial process from, but it is something that had to be done correctly and not be gambled with.

3. Standard Chartered Bank is an anomaly in that the boss sits in London while the real business takes place in Hong Kong and increasingly from Singapore. I must say that London has had this neutralizing lure on a string of Standard Chartered chief executives. Being chief executive of Standard Chartered was like a corporate membership into a gentrified club in London that these CEOs would not otherwise be invited to join.

I had watched the same thing happen with a number of Sand’s predecessors. Mervyn Davies and Rana Talwar and long before that, even with Malcolm Williamson. All three presided over a string of operational integrity problems in the organization, resulting in fines as high as 300m sterling in India in the 1990s, which was long before the $300m in the US just last year. I put this to the top management in London being disconnected from the rank and file in the bank’s core regions. What business is there, that derives 30 percent of its profits from Hong Kong, that has a boss who calls into the office from London eight hours later every day?

But London is alluring. Long after he left the bank, Talwar still maintains homes there and enjoys the hotter part of the Indian summer in the city every year. Mervyn did well for himself, using his positions within the bank to consciously gain recognition in London, first through politics as a UK government minister and then by becoming nothing less than Baron Davies of Abersoch.

Peter Sands has ratcheted his entire public relations team to build a similar respectability in London that will make his own life comfortable after leaving the bank. He participates in local government initiatives, lunches with UK editors, contributes op-eds to UK-based publications and even Linked-In, not for one minute offering the same level of attention to the markets where StanChart’s actual businesses are in. If only he read his bank’ own epigraph, that it was the world’s leading emerging market, and not UK, bank.

The failure of the public relations team to build any real goodwill in the US came down hard in the form of a little known New York regulator choosing StanChart to be the bank to show its prowess, when it close to fine the bank a handsome sum for 60,000 Iranian originated transactions, while investigations at the other regulators were still going on. Sands scrambled to New York do some crisis management, only to find that he had no friends there in the same way he had in the clubs in London.

Not that London treated StanChart any better because of its CEOs pandering. Despite all their cavorting with editors, regulators and the gentry, the London media keeps putting StanChart into a box, always treating it as nothing more than a takeover target. What you read in the UK newspapers today about StanChart being a takeover target is nothing new. The UK media has been consistently hounding StanChart like a pack of wolves since the 1980s, to make it a takeover target, if possible to Lloyds as the only acceptable conclusion. There is a senselessness in the UK media world that one should not pander to, and as Sands is about to find out, they will have no qualms in squashing all the goodwill he has invested in with them, and sacrifice him to fill another page in tomorrow’s newspaper when his own time comes.

In all this, StanChart’s London-based public relations team is probably the most flatfooted of all the international banks. All that money spent supporting the establishment newspapers, a dysfunctional team that has hardwired itself to a dysfunctional CEO’s agenda. If Sands said a certain UK editor was worth cultivating, the PR team would cultivate that editor brainlessly. Other editors, especially in Asia, were treated shabbily with Sands signature cold fish shrug. There was no strategy. Just people they liked. No global branding that could withstand a global crisis. The PR team, like their boss, is disconnected from reality, heady from the intoxication of yet another party in London the night before, if that was what made the boss happy.

Sands, like his predecessors, will hopefully still be the winner in all of this. He will be lifted by a proverbial helicopter to be knighted and be absorbed into the London wallpaper, while the careers of deserving executives will lie like corpses on the streets of Seoul, Shanghai and Hong Kong.

Now, there is one big difference between a StanChart being domiciled in London but deriving its business from Asia, versus a HSBC doing the same. HSBC’s core management team is made up of its proverbial 300 British executives being sent out to represent the bank in the rest of the world. The COE has a handle on them. HSBC makes no pretence that there are any global management opportunities for any of its domestic staff in any of the far flung offices out there in the empire. So the CEO has a stronger handle of the bank’s senior management team, than a StanChart, whose management team is drawn from the grounds in which it operates in, while the CEO sits in London.

4. Peter Sands cultivated cronyism. It is hard to say how or why. His growing up years as a son of very English colonial parents in Malaysia would have made one of two types of persons out of him. Either an intensely defensive one, dividing and ruling just like the English did in colonial times; or an intensely inclusive one, subscribing to a commonwealth of strengths to solve daily problems. The people whom he defaulted to in the management shake-up earlier this year – Karen Fawcett, Jaspal Bindra, Mike Rees, V Shankhar – and more pronouncedly, the people he alienated, showed clearly that he was intensely defensive. You need to understand how a Jaspal Bindra survives in the organisation to understand the depth of the problems that the leadership at StanChart is suffering from. He may not be a main cast, but he is still a John Falstaff in Shakespeare’s King Henry VIII.

Cronyism creates a layer of agreeable management staff who make it even more difficult for the boss to see the reality on the ground. Ray Ferguson, a Sands man in Southeast Asia who has since left the bank, made the headline grabbing claim in 2010 that he wanted to raise the number of staff in Singapore from 2000 to 8000 by 2012, at a time when all other bankers could only scratch their heads. Just like Karen Fawcett, he obviously had no clue “at what cost” should such a massive increase be achieved, but he was just regurgitating his boss’ madness. He probably left the bank a broken man, mindful of what an idiot he looked like saying those things in the best of his days with the bank.

Cronyism in the boss also has the effect that it leads to cronyism in the subordinates. When she was head of transaction banking, Karen Fawcett simply surrounded herself with (mostly Indian and Australian) managers who told her what she wanted to hear. For a time, they even gave her the numbers she needed to feed her bosses. But she was simply not able to build her own agenda or take a StanChart to the next level that even essentially domestic regional banks like DBS and Maybank were slowly chipping away to get at. So when the transaction banking business started to falter, she could not retrace the plot (she did not even know how many staff she had). But all is well, as neither is she now required to sort it all out.

I must say that despite the upheaval in its upper echelons, Standard Chartered continues to preserve much of its core teams working on different projects of its deliver capability remarkably well. They are out there in the trenches, waiting to see which direction their bosses in London will take them. This remains one of the best banks in the use of Data and Analytics, in its customer delivery strategies, especially in the use of mobile technology, in its small business segment, in its risk management culture. The fact that so many of the people who built these strengths of the bank are still there is an amazing anomaly. Under the right leadership, their skills can still be built on, and that is what makes StanChart’s infrastructure truly world class.

5. The combination of cronyism and the lack of empathy for the franchise is exasperated by a more fundamental problem. A lack of appreciation for operational cost. Managing cost is perhaps a CEOs single most important skill and instinct, barring all others. Sands paid attention to two things very well – dividends and capital. Operating costs was not a feature in his deliberations because he loved his shareholders more than he loved his staff. Any analyst going through the numbers would have appreciated that they were designed for the unsuspecting shareholder.

A dreaming management consultant may wish to rake up the topline growth in the way Sands did over the past 10 years, but a sharp intuition for costs was needed for a leader to be able to say “no” to acquisitions and businesses that could potentially kill the organization. There was the fatal acquisition of Korea First Bank. I always wondered about the audacity in absorbing an acquisition that could potentially account for 40 percent of the bank’s total business. I was originally really impressed. It could have worked. But it needed to be augmented by franchise building skills. It had to be augmented by frequent visits to Korea to understand what the country was made off, if indeed it was going to generate that amount of business.

Even a few casual visits to Korea told me that the consumer credit culture in that country was far more rogue than what met the eye. Someone who spent one day more in Korea than I did would have been far more cautious in growing the consumer loan book as aggressively as StanChart did. There was this unbelievable money lending culture in Korea. The herd instinct of the local banks. The headache in aligning the Korean acquisition to the core franchise of the bank. There was no substitute to a feel of the ground.

So, his 2009 and 2010 numbers looked particularly good, and the creeping costs were easily explained away. They were kept that way by intensely suppressing the parts of the business that were actually keeping the bank’s franchise in order, and rewarding the parts that were generating the top line numbers but at great cost to the bottomline. Herein lies another anomaly of cost control for a CEO who has lost his way. When it comes to the crunch, he asks his plodders who were giving him his numbers to sacrifice their salaries while continuing to reward the people who were bleeding him, for fear of losing them.

The way in which the corporate finance business has been raked up to deliver 70 percent of the top line growth, without consideration to the bottom-line costs to the business, is set to haunt Sands in the next year or so. People like V Shankar are bookmakers, not franchise builders. People who do not understand the traders business see only that Sharma is “intelligent” and “bright”, but those who do know the business point out to his insistence to book as much of the debt and equity flows of the bank as his own.

Like Shankar, several of the people who Sands has surrounded himself now are investment and corporate bankers, in a bank whose core income is retail. Sean Wallace brought in to unlock the value of the corporate banking business into a high yield debt and equity capital market business now sits on a business where the corporate banking business never rose beyond being a balance sheet business. So the capital costs wipes out all the profitability of the flows these gentlemen have ostensibly created.

To give someone like Mike Rees or V Shankar the reigns of Standard Chartered today is the same thing as giving Bob Diamond the reign of Barclays in 2002, but with full benefit of hindsight.

6. By the time the plot started to unravel, I discovered yet one more thing about Sands that I had not realised before. He does not understand operations. Attempting to merge consumer and wholesale banking, whether at the technology or operational fronts, is a multi-generational process in any bank. It is simply not a case of cobbling a few disparate people on the organisational chart. It takes years to streamline consumer banking processes until there are clear parallels with transaction or corporate banking systems. Then you have to standardise, standardise, standardise. The heads of corporate banking systems and retail banking systems have to be talking to each other for years, before they mutually come to the conclusion that a merger would suit them.

One needs to test pilots and then entire processes before you can actually merge consumer and wholesale operations with engineering discipline. Throwing into the fray the very different people culture as if it was just a powerpoint presentation exercise is something that only an idiot would venture into. Anyone who understands operations can see clearly why this merger is designed to fail. These mergers are not about organisational charts, and this significance was completely missed the analysts. No alarm bells rang. In a large international bank, the decision is almost not made by the CEO but by the people in the middle who have a firm grip of the processes. Whatever the reasons Peter Sands had to made the decision to merge consumer and wholesale banking, putting an unproven person like Karen Fawcett to make it happen, is profoundly reckless.

All I can say is that Sands does not appear to be thinking about staying around long enough to see the effect of this dangerous decision. Which then puts the spotlight on the board. A board of directors is supposed to encapsulate the collective wisdom of a group of people who should prevent a management team from making mistakes like these. Are they also clueless? Or are they too mesmerized by an Englishman who knows how to direct his charm at them to get what he wants? The board, more than anyone else, must be held culpable when this chapter comes to its logical conclusion.

I use the word “franchise” to describe that point in time when all the parts of an organization resonates as one, such that the organization as a whole is delivering its best numbers because of the clarity of its leadership. It refers to the way in which all the people in the organization are well synchronized to achieve some things particularly well, perhaps because of the values they share, but more importantly the way they are trained, mobilized and motivated over a fairly long period of time.

Some of the best franchises may be described as old fashioned and conservative, but what they represent is low customer and staff acquisition and retention costs as well as low non-performing loans that enable them to deliver the performance numbers that leave other more brash players and the management consultants of the world scratching their heads. It’s very low cost structure is achieved because loyal staff stay not because of the money but because they are happy, and loyal customers stay because the key messages are compelling and consistent over the years. This same franchise would have created operational efficiencies and avoided some of the operational risk problems that StanChart found itself in. In other words, Sands could have built the same profitability figures for his shareholders if he focused on the very people he has been taking for granted.

A franchise can take anything from 5-6 years to bring about, from the time a new leader puts in place his or her vision of what the priorities should be, and the people take the time to deliver on them. A good franchise can last over many business cycles, and the management will be able to make important judgment calls, such as not entering some businesses even if the rest of the competition do.

There are a handful of leaders in the financial services industry who demonstrate this franchise building skill in very powerful ways. Most are entrepreneurs whose families own the banks. But some are also passionate managers. Standard Chartered may still have some of them. Their common trait is that they put their personalities on the table, and their personal careers on the line to lead from the front. When something goes wrong with their organisations, of course these personalities loom large, because they are there out there in the battle field with their troops every day. They don’t cringe from accountability. It is in this aspect that the aloof and calculating Peter Sands makes himself too complicated even for his own staff to understand.

A strong franchise is something that comes about when an ordinary business is run by ordinary people who get better at what they do over the years. Standard Chartered Bank was one such franchise in its original core home markets – Hong Kong and Singapore – although also in Malaysia, Taiwan and Australia where its core staff and its core customer base have grown with the organization over a 20-30 year period. If a bank does not get its core markets right, its growth in all other markets – as in Africa today where the bank is determined to open new branches – will be a cost overhang that it will not be able to bear.

Standard Chartered, HSBC and Citibank became strong international franchises that few other international banks could emulate, mainly because these had a strong domestic commercial banking arm in many of the countries they operated in. ABN Amro did grow to become an international bank very quickly, but without a franchise strength, it disintegrated very quickly as well. It is a lesson that ANZ should seek to understand even as it struggles on the cost front to build its own Asian story.

These banks would have found that no matter how international they are, their core 20% management talent bank and the core 20% of the customers still generated the 80% of their franchise’s core profit as well as so many of the other unquantifiable core characteristics of the bank. Break this bench strength and you break the bank. This bench strength for Standard Chartered rests with the core retail banking team in Hong Kong. Instead of being carefully nurtured, they have been given the short end of the stick on every cost cutting and resource reallocation exercise, while others in investment and corporate banking have been promoted way beyond their real contribution. It is a very human miscalculation every CEO makes, when he makes decisions based on who is standing right in front of him instead of having that instinctive skill for this business in the first place.

Whatever you say about Citibank, to this day, it has a bench strength of management staff on the commercial banking side of its business that can easily rise from the ashes of the errors made on the trading side of the bank. The manner in which Citibank employees are selected, trained, inculcated and nurtured to management positions is still very much intact – and herein lies its franchise strength. From this, it builds its bench strength in such a way that a reasonably good manager from the same franchise, like a Michael Corbat, will be able to pull the organization together very well. Vikram Pandit, although the only outsider to have been brought in to run Citi, did nothing to dismantle this franchise. If anything, to his credit, he carefully kept the entire franchise together, resisting to even offload some of the businesses during the hardest of times, for exactly this reason.

When Sands excuses himself from the current malaise by saying “the bank has had 10 good years” he is attempting to blame the loss of a franchise to economic cycles. There are good franchises that have survived many economic cycles (IBM for example and definitely Wells Fargo), and so we must not believe him at all. He had nothing to do with those “10 good years” in the first place. He was merely a beneficiary of the best cohort of people the bank ever had who gave him their best years until they finally could not do so anymore.

For the reasons I have mentioned above, I recommend that StanChart finally moves its headquarters back to Asia. If Hong Kong is home to HSBC, then StanChart should seriously consider Singapore, where much of its international operations is located. Notwithstanding its Hong Kong note issuing business. But that, as they say, is another story.

When things finally unravel, as I believe they should by the end of 2014, this assessment could also be read as the point at which this bank will be able to renew itself for another generation.

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Comments 112

  1. Steve Monaghan says:

    A bank best positioned for success flailing with the worst execution.  Brilliant summary.

  2. Ashwin says:

    This is so true and well written. A really comprehensive and rational analysis of reality. 

  3. Calvin says:

    Amazing insights that only come from deep management experience and insider knowledge. The other bank that comes to mind is HSBC. You can almost replace the characters in the expose talking about the other bank. 

  4. Ashwin says:

    The paragraph on Cronyism is brilliant. That has led to Mediocre Talent being glorified, and excellence being abused and as a result an exodus of good people. Also, the section on a few doing more and being burnt out and many doing less and rewarded is a good inference.

    • male anglerfish says:

      The 'Talent Acquisition' function in Standard Chartered is the fiefdom of functional head who will hire someone they want to support, and then put up a job watch for that role, which is a farce. I once called Talent Acquisition after applying for an internally posted role, and they shamelessly told me that the job was already taken; oh, and this was one week before the closing date. On another occasion, a position within my department was advertised and I called my line manager to ask if I should apply, and he said it was posted by mistake so I should ignore it. This happened while I was on holiday, so out of curiosity I checked again the next morning and as expected the job watch had been taken down. When I returned from my leave, another colleague who was my boss' protege had been given that very role!

      Bottom line is that unless you have a daddy in the bank, you are nobody. Standard Chartered excels at sucking the blood out of conscientious, hard working, and talented people, and reducing them in the organization like a male anglerfish. For those who don't know, the male anglerfish attaches itself to its female counterpart's body, and then slowly its head and body dissolves away, leaving just its sperm producing glands visible as a little protrusion on her body, to serve her needs.

  5. Mr T says:

    Fantastic article and great insights on the high level of Cronyism and I fear that the level of Cronyism has spreaded beyond this bank especially in the financial sectors in the Asia Pacific, Singapore in particular.

    It pains my heart to see the situation of the bank today even though i am no longer with the company as I had learned all my banking there from the early 80s.



  6. Ad says:

    Great analysis. 

  7. MAH says:

    Great over view , the key contributor towards its failure is the damage to its core culture  which shifted towards greed introduced  by investment bankers in early to mid  2000 which was neither sustainable nor based on solid  client relationships, consumer business also  moved from professionalism to inducements of excessive commissions paid to consumer bankers ;;  nepotism, high staff turnover, hiring ofmediocre to low talent;  wide spread corinies is today's SCB ! True it is a failure of franchise ! 

    the franchise need to protect its core values & culture like Citibank and HSBC, 

  8. Walker says:

    Seems like a synopsis of an agrieved and truly concerned stakeholder.

    Obviously a wake-up call for the management of the good bank. A lot of things, its value, its culture, its hard-earned franchise, etc, can still be salvaged. Some of us that have put in good parts of our career lives, whether past or present, would like to see the bank back in its good shape.

    • Flor says:

      Parts of the Marketing portfolio are stitgearc (branding, segmentation, strategy) and parts are tactical (advertising, lead generation, trade shows and web site/social media). I think that a big part of CX fits under branding + strategy while others fit under tactics including communication, employee training, analytics and retention policies. So, maybe CX is a branch of Marketing and the Marketing Director should be re-titled as Chief Customer Officer (as is happening in many companies) and the CCO should have specific shared responsibilities with peers for the tactical aspects of CX. This will force Director’s and CEO’s to actually communicate and work together to achieve a common goal growth from loyal and profitable customers.

  9. Xubair M Khan says:

    These are the rue Analysis..I was with this bank for the Last 10 years but have to move because of this situation.

    Good Post..Really an insight view of SCB..

  10. Joan says:

    Interesting read, quite analytical and sounds like years of pain to the writer. Whereas this article carries some insightful pieces, I can not dismiss the detail and level of insider information most heartily shared. I have great respect for the institution and I remain open to its developments that have not let it down thus far. Regardless of the comparisons presented such as City Bank etc, the running of the retail franchise is commendable (atleast in my market) and should not be underestimated by trivialities of leadership styles. For the years spent with the institution , I want to believe that the transformation at each level was due and therefore a result of intensive research and due required advance. It’s interesting that an organisation of its poise receives this review from someone who most likely has been involved in its management and is conversant with its operational model. More than a ‘speak-up’ to me.

  11. Kevin Gui says:

    Being still an employee (as I speak) and having been associated with Standard Chartered since 1988, I have seen the changes that the bank has undergone.  I cannot agree more with Emmanuel's assessment. The level of cronyism has led to unhealthy levels of stupidity in the senior management, thereby making stupid decisions for the bank.  Sad.

  12. From the past says:

    What an analysis ! So true. ..some very stubborn facts. The investment bankers don’t know commercial banking. Period. I spent more than half of my life at SCB. I loved the bank I joined but not the one I left.

  13. Ankur Mithal says:

    Scathing! Having worked for SCB for many years ending in 2003, I have seen SCB as an occasionally disater-prone bank but flexible and courageous to keep pulling itself out and never averse to change. I hope it can do so again. Of course, it suffers from a basic problem of its "home" being UK but "home markets" being in Asia. 

  14. Clarity Chen says:

    Impressive summary. Couldn't agree with more! As a current employee, I've seen so many strikingly stupid decisions made top down, not just from a corporate perspective, but also within teams. This bank promotes mediocrity, and in no way offers meritocracy to motivate above-par performances, thereby pushing away any new capable hires they initially hired from the real bulge brackets. Pathetic, but true.

  15. Gordon Gekko says:

    This analysis could as well apply to Barclays. While analysis moans the slaying of retail franchise of SCB, Barclays retail franchise, it appears has been in self destruct mode for last few years. And Board has been none too wiser. A similar clinical review of Barclays is expected.

    The maniacal obsession with growth at any cost under Fritz Seeger is a case in point. Mindless acquisition and expansion in high risk emerging markets at peak of credit expansion during 2007-2008 – Russia, Indonesia, Pakistan, Middle East to name a few. Barclays mortgage business rocketed at peak of credit cycle in UK / Portugal / Spain only to clear the debris in 2012/2013. The monies it has lost doing business in Asia – Pakistan / UAE / India is no chicken feeds. Its mindless expansion in Asia during 2007-2009 can be gauged by the numbers of branches it opened – over 400 lending points in India, nearly 100 branches in Pakistan, steroids pumped consumer credit drive in UAE. You name it, Barclays did it in gargantum proportions. Whether dishing out loans or booking credit losses.

    Less said about illogical acquisitions in Indonesia the better. The bank it acquired did not even have the foreign exchange trading license. I wonder whether Seeger ever reported this to its Board or whether Board knowingly approved it. Either way, a case of poor governance. Russian foray was no less adventurous and like all European invaders, Barclays had to beat a hasty retreat with tails between the legs.

    The scandals in selling swaps and insurance products to retail clientele in UK only match the infamy of its Barclays Capital division. And UK Retail continues to make provisions for these swaps and insurance sales from its retail business. And when these mindless financial orgies were going on, Board was seemingly blissfully unaware. With hindsight, during that period, two titans – Diamond and Seeger – were engaged in bitter competition to stake claim for the top job. Seeger lost the war and Diamond became the infamous casualty of Libor saga.

    It makes me wonder how a 300 year old bank was plodding mindlessly through its retail strategy. Is it a disease with British banks who built banking over the ages and have now lost all semblance of managing a global business. While retail franchise struggles globally, UK regulators are doing everything to kill the British Investment Banking aspirations which were spearheaded by Barclays and RBS.

    Before I sign off, history remembers the victors and is written by survivors. Diamond and Godwin were on wrong side of the edge and are history. But whether British banking will emerge stronger at global level is no longer a point of discussion. It is already dead.

  16. Analytics Geek says:

    Hi Emmanuel,

    I see that the blog has had over 18k hits so far. How about you do the next blog on the analytics behind the visits? country, times of visit, frequency etc. would be great insights! 

  17. Shankar says:

    Well articulated . There are many other problems as well. Its transformational projects are in shambles. It encourages personal fiefdoms and sycophancy. It celebrates mediocrity and deemed successes . There are breaches galore , non adherance to its professed policies. Any regulator of reasonable competence can find gaping holes holes in its practices . I had anticipated last year that it is a matter of time the cookie crumbles. It is a Bank which is upto no good.

  18. Rubbish Man says:

    I would have called u a genius if this was written more than 3 years ago during a time when SCB was making a decade of record profits. However, seeing this at a time when the bank is not doing well is nothing more than a case of well-articulated perfect hindsight. Anybody can pronounce the horse dead after it has breathed it's last. Any trained vet will be able to identify the cause of death. But only a truly great horse doctor can see it coming before the horse collapses.

  19. Sad SCBer says:

    Being a current employee of SCB, I am extremely sad to see my beloved bank being thrown to the dogs my its incompetent management. I came from a background of corporate banking and hence, I applied the best of service and courtesy that I learnt from my years as a corporate banker, to the customers in SME banking, who were not used to such quick and polite service. I was immediately made a target by my manager and my peers who came from quite humble backgrounds and who truly believed in milking the most out of customers, while offering very little in return. My customers love me and I am a part of their daily lives, a confidant, a friend and an advisor, but I am perhaps one of only 3 such front liners amongst 45 or so in my department, who truly believe that by doing good for the customers, we foster long term mutually benifical relationships that continue reaping rewards starting with consumer to sme/ commercial banking to corporate banking, as the clients grow. NO!!! I will not over charge my customers, no I will not sell investments, derivatives and bancassurance to people who don’t know or don’t understand them.
    Where do I stand in my career with SCB? People who were a grade below me less than 5 year ago, are a grade above me now. They are mindless machines who have done anything and everything to make their bosses and not their customers, happy. They have constantly surpassed their numbers by selling anything and everything to the clients, by overcharging them, by giving them much more money than they needed for their businesses (hence pushing them into the dirty world of diversion of business funds into real estate speculation) and by not forging any human relationships with their customers. I love my customers and they love me. But I don’t see a future for myself in this bank. I am, like many other loyal employees, treated like a necessary evil by my department as they know if I go, so will my clients. So they pay me enough for sustenance, but don’t reward me for high customer satisfaction, for lowest defaults, for no attrition and I am afraid I will always remain where I am. I am ridiculed by my colleagues, by my boss and perhaps his too. I am told I lack vision.. When i asked what’s a vision, I was told exceeding revenue targets. I am Sorry.. I refuse to be a machine, I refuse to rape my customers, I refuse to say yay to greed, and I will not say yes to the unethical demands of my management. I will remain the go to guy when people need any help or guidance with policies or handling a difficult situation, I will always be praised by my customers and hated by my colleagues and management for it, I will never see my own cabin, I will remaim old school and believe in ethics and doing the right thing, I will stand by my committments to my customers, I will achieve slightly ess than 100% of my tagets but will be more than 200% of a man the peope surrounding me will ever be. I will not be remembered by a lot of my customers, but whoever will, will remember me in kind words, my children and friends will love and cherish me, and finally, my colleagues will always remember me as a ‘Chootia’ (an indian word referring to a loser), who had all the skills and the abilities to be everything he could ever want, but in fact chose to stand up in front of the management and said ‘NO!! I AM OLD SCHOOL AND I WILL NOT DO WHAT’S NOT GOOD FOR MY CUDTOMERS, NO MATTER HOW GOOD IT IS FOR YOUR BOTTOM LINE’

  20. Clarity Berg says:

    Amazing insight into the workings of Standard Chartered. This is not only the case with consumer banking but also wholesale banking. The only thing that works in this bank is cronyism. The lack of credit and recognition given to people working for the bank and giving results and sidelined by  the so called investment bankers who are given positions without understanding the business is remarkable and astonishing. These same people will now work to bring down yet another bank and sadly so. 

  21. Friend says:

    Standard Chartered way of treating staff:

  22. scb says:

    I am surprised that neither shareholders nor regulators are worried . if they do not intervene and do some course correction, this bank will continue to erode wealth and be the fountainhead of mediocrity and cronyism.

    • Carley says:

      Not so much to fix an entire plane, but this is extlacy what duct tape was created for.It was invented by the US Army Air Corps in the WWII era as a way to field-patch damaged aircraft. Personally, I’ll fly in virtually any aircraft, no matter how questionable. I’m a trained skydiver and I can get down on my own.

  23. Friend says:

    I used to work at Standard Chartered. What is striking, is how others' comments resonate with my own experience. Yes, the bank has a subpar culture, yes, it cultivates cronyism, mediocracy, yes, it repels its own best people. Yes, it flanks its own internal policies. Yes, "milking the client" is a way many managers see the business model. Yes, nepotism. Check this, the recently appointed UAE CEO has placed his own daughter with Standard Chartered's high value retail segment. People in the private banking team, just don't understand, how someone with no banking background and some Starbucks experience is given a position of responsibility that requires years of relevant experience servicing the segment. The turnover of staff is astronomical. In four years almost 1/2 of people within wholesale banking in Dubai were gone. The largest share group-wide of corporates NPLs are India nad UAE. Is there any correlation?? Sands has no clue when he speaks of diversity of work force of Standard Chartered in the UAE. The bank has one of the lowest emirtatisation composiiton of all UAE-based banks. A guestimate would put 3/4 of staff being of Indian and Pakistani origin. Even more so when it comes to upper management. 4/5 one would say. Check Sean Wallace's direct reports. Few of them are of other origins. Even the business in the US is run by Pakistanis. They also decide on appointments in places such as Paris. Go figure. I do not know of a single person at the bank who would not choose to leave, given the chance. That applies to all levels, band 6,5,4 so forth and across all departments. I do agree, that the bank's people have been failed. That the culture cultivatged is subpar and self-erosive. The bank has a very different internal image, from the one that it tries to project on to the outside world. Let's see how it fares next. It could be a case worth putting into the annals of academic thought and MBA curricula. 

  24. SCB employee says:

    It is so true and shocking. I know that it lacks in talent identification, acquisition and retention. Talent and merit needs to taken appropriate care for any organisation to grow and sustain. 

  25. Sad SCBer says:

    Dear Friend. It’s not just the UAE CEO, there are many such examples across the board in many of the countries. As far as Indians and Pakistanis go, you can’t really compete with their abilities and capabilities to work hard, work smart and achieve their objectives. You can see anyone from Rana Talwar to Vikram Pandit to Sashi Tharore who have lead some of the global financial institutions. Rana Talwar is fondly remembered as having done the only successful acquisition of SCB by acquiring ANZ Grindlays. He was alas thrown out for reasons other than his performance. I am yet to see an Indian being the reason for any policy or strategy failure in SCB as they all come directly from London or from their Yes-Men from Singapore, while Pakistanis or Bangladeshis haven’t made it to the top corridors of power yet. Indians are at best made the scape goats/ fall guys by the top management which we all know belongs to UK, Australia and the Western World.
    The long and the short of it is, Indians and some other South Asians/ South East Asians made SCB a great bank, while the bosses who did not belong to Asia, Africa or the Middle East, having zero knowledge of these regions tried to impose copy-pasted strategies here which are doomed to fail, although they may be grearly successful in the West. Asia, Africa and the Middle East are all about human relations, about personal touch, your customers think of you as an extended family. This Western philosophy of business and personal lives are two different things, is doomed here. I have seen people from IIM constantly outwitting and outsmarting the Univeristy of Bradford Grads. Just see this: None of our top western management belongs to Ivy League schools and are graduates of humble colleges while South Asians/ South East Asian even at the grassroot levels of the Bank belong to prestigious institutions like Indian Institute of Management, IBA in Pakistan and Bangladesh and NUS in Singapore. It’s a hilarious situation. The dumbest people in the Bank are at most powerful places, while the smartest people of the bank are stuck at insignificant positions. This desire of former to control the latter by iron fist along with the greed of the former is destorying the bank.

  26. Second ex-SCBer says:

    Very familiar! Exactly the reasons why I left the Bank after 16 years and felt like I had lost a family! 

    Some comments here blame or extoll Indians and Pakistanis. It's not about particular ethnicities. The bank saw both very good and very bad executives from the sub-continent, exactly as it had from other places. The problem was not race but poor talent selection. You choose self-centred, ambitious people with no focus on the long term good of the bank and it's customers and you destroy value, quickly. 

  27. David says:

    Great article. I like the letters after the article because they do substantiate what was written. The short-term "screw your customer" culture is very prevalent. I have seen British banks raise charges for no other reason or improvement in service, to increase their bottom line. As one of the letter writers claimed, talent is often ignored because the expatriates are only around in Asia for 3 years. Around 2002, it became such that the locals remit is to make them look good and get promoted.

    The change in culture occurred around 2002 when younger so- called well qualified expatriates are sent to the Far East. The old guys have mainly retired and there is a changing of the guard. The rest is history and regulatory fines galore.


  28. Diavel SCB says:

    What an insightful article. Frankly I did not realise that you could write in this way for fear of those being mentioned retaliating legally.

    The challenges in the bank were, and are, the difference between theory and practice. The theory of a performance culture and the practice of the personality culture.So if you are in the club then it does not really matter how well or badly you do? The author mentions somenames but frankly it is the tip of the iceberg especially when it as the heart of key functions such as HR .Everyone in the bank knows it but  does not talk about it. Not so surprising but somewhat at odds with the core value of Courageous.

    A Chairman with no banking experience. A CEO a former McKinsey Consultant and an Executive Board that is very narrow in experience and small in number . Whilst I agree that the CEO is a highly intelligent person he lacks charisma and appreas to have no feel for the bank in the way a Mervyn Davies did. Mervyn was clearly less clever but he did inspire loyalty in the staff and a love for the institution in the same way that Macolm Williamson did. At the top table now nobody is inspiring and appear to be more focused on being aligned with the CEO. In Nazi Germany they used to call this "working towards the Fuhrer"…trying to guess what Hitler  might like and acting accordingly.

    The future looks sadly less optimistic and the bank may start to fall back to the lacklustre days of the relatively recent past. Investors were happy with the bank as long as they were putting in the numbers. Now the times they are a changing.

    A new CEO and then later a new Chairman, relocated to Asia,  would be a step in the right direction of refocusing this bank which still  has the potential to be an excellent bank




  29. ex scb says:

    Great article!! Scb truly filled with bootlickers who don’t give a s**t about value of clients. Just milk them when you can. TB is ruled by all the yes men from the other continent. Sad…

  30. Bush says:

    The ganging up culture finds to be at its best especially in subcontinent. An idiot make it to the top starts pouring in his (industry failed) kids, place them through an ariel route on different positions , results in a career death of many and at last a talent leakage. Obviously, we called this day ourselves through different aspects mentioned in the article and rightly so.

    I left SCB Pak, can’t bear it anymore.

  31. Glad I'm not there says:

    The truth is finally coming out. As a former employee I had some great times in the bank and grew and thrived there. SCB was a great bank, but it all turned when Peter Sands took over as CEO, a consultant who is a boffin, smart but with little personality of a leader. Mervyn Davies on the other had was a clever blend of a people person, and a leader at the core – he changed SCB from a banana skin bank to one which would become respected globally.

    The Wholesale Bank took over, and Mike Rees was patently partisan and always opposed to the Consumer Bank. Admittedly the Wholesale bank did exceedingly well, raising their stature and resulting in the Investment Banking culture, which has eroded it to the core today. When Peter Sands brought in Steve Bertamini in 2008, it was the death knell for the Consumer Bank. Even people in GE would wonder how he managed to get the job when he had a less stellar history with GE and was managing a governance role in China with little power. Steve then brought in a coterie of his colleague from GE which were obviously influenced choices. They proceeded to erode a franchise to a shadow of itself today. Good people left in droves, and this was papered over by the cronies of Steve. Peter knew that that Steve was a mistake back in 2009, but embarrassed to accept that he had made a hiring mistake – his first senior hire as CEO. Now Steve is finally gone but richer in the wallet, and the irony of handing over the Consumer Bank to Mike Rees is something we will never understand. Cronyism also thrives if you have a board where the CEO is supported by 4 Executive Directors (direct reports of Peter).

    People who know SCB will agree with the tone of your article – the downward slide is clear. The question is – when will shareholders and the board see the light and take action?

  32. sandeep deobhakta says:

    ‘Hard hitting’ is putting it mildly. This is a very thorough list of what not to do!!! Btw, the franchise piece about Citi is spot on. A few years ago, I had the opportunity to chat with someone very senior on Sandy Weil’s team post the merger at Citi and his view was that they did not fully appreciate the value of the global franchise and the value of the people who had built it over the years!!! A big lesdon for anyone in a leadership position.

  33. Chitra Radhakrishnan says:

    Thank you Emmanuel for this insightful post.  I finally have a proper insight of the hell my husband had to endure while having to battle cronyism.  He was ousted from his role in SCB TB, after fighting tooth and nail to keep his job.  Allegations were made, which they simply could not substantiate.   However, they just strung convoluted sentences together and dubious figures together to create a "case" against him. My husband has been cheated out of his job.   There is some kind of mafia operating, and unfortunately, many of the members of this mafia seem to have originated from the Indian subcontinent. Oh sure, they go and get passports from other places like Canada, Singapore, perhaps even from countries in Africa, They are still able to band together and behave like a mindless herd, guided by a thuggish instinct.  There seems to be no place for ethics and the only survivors are the boot lickers in this game.  It is really unfortunate that in the 21st century, we are reverting back to stereotypes about race and ethnicity.  These goons give others who come from these countries and who are intelligent and hardworking a bad name.  Here for Good??  I really wonder.

  34. Friend says:

    It looks like Standard Chartered is doing just fine and growing at a double digit pace again!! The global recruitment website features a total of: 8,462 Jobs in Finance, Banking and Insurance. Of these 544 are with Standard Chartered, an impressive market share for the recruiter of choice!! 

  35. Stetson says:

    As an ex Standard Chartered employee, going back to the 1980s and 90s, I couldn't agree with you more that cronyism – which emphasises a certain kind of loyalty, the flip side of which is mostly uttermediocrity – has always been the core problem within the bank. And it hasn't gone away it would seem. But I am not able to see any virtue whatever in the HSBC model that you commend – how could 300 Brits unleashed in to the bank's gepgraphical spread really give the CEO a more effective "handle" he needs in any respect other than the old game of targets by metrics which you rightly do not agree with. That nonsense, I would have thought, should have stopped after Harold Geneen and ITT. There has to be a more nuanced and qualitative apporach to setting objectives than the mere posting of hurdle rates and returns based on metrics.

    Having said that, it is quite clear that you have put your finger on another core problem at StanChart : the allure and enticements of London as an HQ! It is also apparent that you have had the benefit of significant inputs from elements within the bank or from recent departures. Some of these inputs can be spot on, as with the Falstaffian characters you refer to but not always in every case because pet peeves and prejudices do creep in. I am not surprised to find that this is very much the case in the strong undertone of criticism of Indians in senior positions though I can understand the rancour this leads to in certain quarters!!

    Thank you for this great update on my old bank, I hope you will revisit this theme frequently.

  36. Friend says:

    Chitra, you are spot-on. A mafia-like parallel informal internal network, that controls the core business. My line manager, long gone from SCB, told me and was of the view, that the bank "has been taken hostage" by such individuals. 

  37. Echo says:

    Having spent several years working in Consumer Bank, without doubt it is the worst financial institution I have ever worked for.

    Lack of discipline, mediocrity,  non adherence to standards, cavalier attitudes to compliance, appalling execution and a profit is king attitude.  Operations is inept and there has been a compete failure to invest in systems and standardize core processes in addition to defining basic account abilities. 

    Further –  toxic politicking and cronyism pervades the institution- especially Consumer Bank where an Indian centric coterie is unchecked and promotes itself

    Those that have done well and had exceptional careers at other financial institutions flounder at SCB – particularly in Consumer Bank. However – there is no will to change and inertia and paralysis is the order of the day.


  38. Bhullar says:

    As an ex-staff who joined as a management trainee and spent 26 good years in SCB and still maintain contact with many colleagues working there, I can vouch for the contents of this article and the depth of the malaise that has set in at the 'heartless' numbers management style.  Yet, deep down in my heart I pray and wish SCB well and hope they can leverage on their franchise to be a bank of choice for its customers.

  39. Glad I'm not there says:

    The latest results now reflect the views above. Nos are down and Lenny Feder one of the Investment Bankers brought in from Lehman (?) is going on sabbatical. Dark clouds ahead so they should brace themselves.

  40. Drastic Measures says:

    The next steps to brings things back to shape are:

    1. Fire 100 Banded Staff.

    2. Since it is majority owned by GIC, get two board members with executive powers.

    3. Rehire vacant senior roles based on stringent eligibility criteria.

    4. Review compensation structure – slash those overpaid by50%

    5. Fix stringent accountability norms on Capex Spends, ROI, Execution, Performance and Asset Quality.

    6. Bankwide cleansing of redundant talent.

    7. Dynamic and Fair appriasal policies.

    8. Bring in good leaders to inspire talent to stay and perform.

    9. Review Business Models, Products and enhance market intelligence.

    10. Sustain the institution during this transition with a 5 year vision.

    It has been 6 years since the 2008 Sub Prime Crisis and many istitutions that were affected went thru these measures. A revival is very much simple if executed with a will and the intervention of shareholders. afterall, it is their stake that it at stake. And the management has no stakes whtever currently.

    This is not a discovery and am sure these steps would be on the agenda of those concerned. And then all will be well.




  41. The Rainman says:

    Another ghost created is "SPARTA" with an assurance to bring 10% saves in the overall Real Estate operating costs. This not only has started making well experienced and long term employees redundnant, but the merits of retained organization is questionable and why ALL jobs aren't as per job watched?

    Why has HR simply aligned to the Unit Heads recommendation and not questioned and played pivotal role on decision for retaining staff or on Bank roles? 

    Effective 01 July 2014, SPARTA [supply partner arrangement] gets implemented at Singapore, China, Hong Kong and India. Within the new organization of CRES, there'll be tens of redundant staff, there are tens of staff having moved to supply partner roles with salary cut of 5% to 25%. During the early conversations in January/February, the CRES Heads assured that all staff [either outsourced or FTE] will have "jobs" with no reason to panic.

    With 01 July approaching sooner, staff have either been told that there aren't any roles for them under the SPARTA model or they are too expensive for supply partner or there's no role in the bank given your seniority. Is this fair statement? Is this the way bank stands beside people and not above them? What happened to values that this bank is known for?

    Where is this bank heading to? What has drastically changed this bank? Is there scope for bank to be humane?

  42. John King, Jr says:

    Dear f