Clinging to the Wreckage

UBS, Switzerland's largest banking group, has just written off $37bn (£18.7bn) of its sub-prime investments.

Following an internal investigation demanded by the Swiss Federal Banking Commission, the Swiss version of our own dear FSA, it admitted a series of mistakes including inadequate supervision, poor risk management and a failure to react quickly enough when the sub-prime market started crumbling.

UBS was so focused on racking up ever larger profits that it “forgot” every silver lining has a cloud.

This is its first full-year loss (Sfr4.38bn for 2007) since its came into being 10 years ago following the merger of Swiss Banking Corporation and Union Bank of Switzerland. Planned job cuts are rumoured to run to more than 3,000 people.

As one might expect of the Swiss, those in charge have shouldered their full share of the responsibility and suffered the inevitable consequences. The Chief Executive, Peter Wuffli, was ousted in July last year, followed by the CFO, Clive Standish and the Head of Investment Banking Huw Jenkins. This month it was announced that the Chairman, Marcel Ospel, would not seek re-election.

Meanwhile, here in the UK, RBS came up with a further £5.9bn of write-offs on bad debts yesterday having already declared a £1.7bn write-down of sub-prime investments in December. However, you would search in vain for any admissions of abject personal failure by top management, let alone a principled resignation. In any industrial company the chairman and chief executive would both have been fired and forgotten by now. Not so with RBS.

Apparently RBS's has two excuses: (1) things have changed, and (2) it didn't foresee quite how bad things would become. Well, isn’t that what leaders are paid to do? Doesn’t leadership imply vision – the ability to see and foresee, rather than stumbling over the truth, picking themselves up and hurrying off as if nothing had happened (Churchill). And if they fail to uphold their end of the contract should that contract not be properly terminated?

According to Sir Tom McKillop, the RBS chairman, the board is unanimous: the current team is the one to take the bank forward. On what logical basis should that be the case? Those that have engineered dramatic expansion are rarely adept at managing either a holding operation, or retrenchment. Those call for very different skills. Endangering the ship when it’s in stormy seas, based solely on your capacity in calm waters, constitutes reckless conduct in anybody’s book.

Marianne Jennings, Professor of Legal & Ethical Studies at Arizona State University has identified the belief by management that they are so brilliant and innovative that the mundane rules of accounting, corporate governance and even basic economics do not apply to them as one of the seven signs of ethical collapse. RBS fits the bill.

Of the five leadership traits identified by Kouzes and Posner’s research that was done for the book ‘The Leadership Challenge’ namely:

~ Honesty
~ Forward-Looking
~ Competency
~ Inspirational
~ Intelligence

RBS seems to fall short on the first three.

If the Swiss banking fraternity have the principled leadership qualities needed to do the right thing then those privileged individuals on this side of the Channel should exhibit the same qualities.