A tale of two CEO’s
Another scandal and another disgraced CEO has been forced out of a job but Barclays’ former top man Bob Diamond will not be worried about being unemployed. Although he was in the hot seat for just 18 months, Bob Diamond’s earnings over the last 5 years totaled a staggering £120 million with his most lucrative year coming in 2008 during which his earnings reached £25 million.
Before becoming CEO, Diamond was previously in charge of Barclays Capital – Barclays’ investment banking arm. With investment bankers’ popularity ranking alongside that of traffic wardens’ his PR team were always facing an uphill task.
Having stepped down he is reportedly now entitled to a year’s basic salary – £1.35million – and is in the throes of negotiating a pay-off which may include a further £18 million worth of share options and long term incentive bonuses. This will certainly not win him any popularity votes.
Whilst his bank balance is in rude health, Diamond cannot say the same about his reputation. Liberal Democrat peer Lord Oakeshott certainly didn’t pull any punches when giving his view on the situation and summed up the mood of many: “He has had to resign in disgrace, trashed the Barclays brand, destroyed billions of shareholder value and done terrible reputational damage to the City of London as the world’s financial capital.” It is safe to say that Oakeshott is unlikely to feature on Diamond’s Christmas card list.
Despite the huge pay packages and the examples set by the likes of Fred Goodwin and Bob Diamond, CEO’s aren’t all public hate figures in the making. Jim Skinner’s departure from the top post at fast food chain McDonald’s last week could not have offered a more stark contrast.
Having joined the company in 1971, Skinner occupied the hot seat for 8 years and bowed out to much acclaim and a retirement package worth around US$82 million.
Not only is he credited with reinvigorating McDonalds by expanding its menu and transforming many of its restaurants, under his stewardship McDonalds become the best performing stock on the Dow Jones in 2011. Shares rose by 31% fully justifying Skinner’s relatively modest US$8.75 million salary and cementing a legacy which could not be more polarised than that of Bob Diamond’s.
The writer of the classic book “Liars Poker” Michael Lewis recently met his former boss Jon Gutfreund – the former CEO of Salomon Brothers – for lunch. This was detailed in the epilogue to his book “The Big Short” (2010) which looks at the reasons for the global financial crisis.
Fundamentally, Mr Lewis argues that the decision by Mr Gutfreund to take Salomon Brothers public started the Wall Street ball rolling along a dangerous path. Other banks followed Salomon culminating in Goldman Sachs’ IPO in 1999.
Partnership structures were abolished and management became more focused on growth targets and less focused on avoiding large risks. After all, losses were absorbed by stockholders and strong performance meant large bonuses.
The global financial crisis has seen banks collapse due to the high-risk strategies employed. However, managements blamed extreme market conditions rather than themselves.
In the UK Barclays has seen a huge payout for its former American CEO, Bob Diamond, who recently left the group. However, despite the high pay Barclays shares have not performed well.
The bank has been caught out in a LIBOR (London Interbank Offer Rate) rigging scandal which has meant large fines. Barclays has also been caught out by the Treasury for its aggressive tax minimization schemes.
The current ownership model of banking brings to mind the cynical phrase that investment banking is a great business [only] for investment bankers. However, as it works well for bankers the industry will be loath to change.