This long read was first published in Developing Leaders, Issue 20. Sign up for free with IEDP to receive future issues here.
Quis custodiet ipsos custodies?
Who guards the guardians?
The cloak of sombre piety donned by many when they roll out that phrase – the work of the scurrilous Roman satirist Juvenal – never entirely covers the tag’s origin in a ribald discussion of how to prevent lusty wives from straying with their strapping Syrian bodyguards.
In the not so distant past, customers at Barclays Bank may have felt they were getting similar treatment from those tasked with protecting their virtue. Scandals, resignations, regulatory enquiries, plunging stock values – each new revelation added thread to a growing narrative weave depicting Barclays’ staff as technically, ethically and culturally unable (unwilling even) to comply with either regulation or best practice.
How do you influence people who don’t report to you?
This was the question facing Mike Roemer on his promotion to the role of Barclays’ Head of Compliance. He had joined the company in January 2012, as Head of Internal Audit, bringing with him 27 years of internal audit experience – mostly gathered at JPMorgan Chase. Like other senior executives across the banking services sector, Roemer had witnessed how the action of a single employee, or rogue group of individuals, could severely impact a damaged reputation that had taken years to establish. Was he facing a few bad apples, or would the challenge be to overhaul a barrel no longer fit for purpose?
Founded in the 1690s, Barclays is a British multinational banking and financial services company headquartered in London. Its activities include operations in retail, wholesale and investment banking, as well as wealth management, mortgage lending and credit cards. Present in over 50 countries and territories, servicing around 48 million customers, as of June 2014 Barclays had total assets of US$2.24 trillion, the tenth-largest of any bank worldwide.
“Banking is a trust business,” Roemer reflected. “Customers have to be able to trust us to safeguard their family’s security, their way of life, and their assets.” While investors want a profitable return, they also need to know that their bankers are acting responsibly. Roemer and some other senior managers saw that Barclays urgently needed to re-centre their business processes on customer outcomes. His own seat on the Barclays Group Executive Committee is not only unusual for a Head of Compliance; it is a signal that the function for which he is responsible is no longer being left on the back burner.
While there is no denying that for several years the words ‘Barclays’ and ‘compliance’ were rarely used positively in a single sentence, encountering reality big time prompted some really big questions, a serious effort to overhaul particular mechanisms within a function, and that function’s place within the wider corporate machinery. Like other executives in other sectors they saw executive education as one piece of the puzzle.
“Banking is a trust business. Customers have to be able to trust us to safeguard their family’s security, their way of life, and their assets”
The idea of a custom program was ‘in flight’ when Roemer took up his new post. With the stakes so high, Barclays undertook a global study in collaboration with a leading consultancy to explore compliance training, over 100 providers including consultancies and business schools were appraised. These were whittled down to two, then down to one. Cambridge Judge Business School, named after its principal benefactor, the British businessman Sir Paul Judge, is the business school of the University of Cambridge. Though only established in 1990 the school has carved a world- class reputation for itself in its first quarter century, befitting its status as part of Cambridge University.
“I was very excited about this program since it also ties up with a reputable institution like Cambridge. I believed it would be able to help build up my knowledge and also would look good on my resume.”
– Program participant
Peterhouse, the oldest of Cambridge’s 31 constituent colleges, was founded in 1284 by the Bishop of Ely and over the intervening centuries, through religious reformation and societal upheaval, the University’s reputation for scholarship has been nurtured by some of the brightest minds known to the arts and sciences.
Boardroom battles had been a feature of Barclays in the period of crisis. High-level leaks to Parliament and the media were an all-too public proof of what could also be read in the firm’s high rates of executive attrition. Here, the business school of the University of Cambridge was uniquely qualified to assist in calming troubled waters. “We’ve got over 800 years of experience dealing with institutional wrangling and politics,” remarked Richard Hill, Executive Director for Cambridge Judge Business School’s Centre for Compliance & Trust.
Selecting Cambridge meant that Barclays’ concerned stakeholders would not require much persuasion when signing off on such a critical element of their own brand’s revival. Both technically and culturally, the second oldest university in the English-speaking world had much to offer banking executives seeking to restore traditional values to a sector living with the consequences of trendy bling thinking, high risks and shallow rewards.
How do you collate anecdotal evidence to build a bigger picture?
The technology behind the monitoring and enforcement of banking regulations has transformed in recent years, enabling ever more sophisticated scrutiny of transaction patterns. Barclays’ compliance tool bag includes software which enables easily visualized real-time surveillance of trading activity as well as the capacity to monitor an individual trader’s short term in/out communications and long term behaviour patterns. There is also the expertise to quickly flag concerns in conduct, behaviour and values.
From Socrates to Shakespeare “the fool doth think he’s wise, the wise man knows himself a fool.” Equally the best academic tailoring of business materials works in the knowledge that the clients often possess greater (and probably more current) real-world experience. It was not the technical aspects of banking compliance which were lagging behind the curve, it was the overall culture. Most of the 99 other schools approached in the competitive tendering process focused their pitches on the technical side of compliance.
The team at Cambridge, however, recognised that a broader, culture-orientated perspective would better frame the collective and individual behavioural shift those at the Barclays helm expected the program to support. “It’s about equipping the compliance function to act as the point which provokes business to ask why as well as what they are doing and about getting [program participants] to see how their role impacts on the system, to draw a line between action and consequence” asserts Richard Hill.
It was not the technical aspects of banking compliance which were lagging behind the curve, it was the overall culture
The Barclays/Cambridge program is a significant undertaking. Already 1,500 Barclays staff have had some training through the program which is pitched at three distinct corporate levels. The core content for each level was selected by Barclays, drawn from privileged real-world scenarios and data. Each module has an academic director from Cambridge Judge Business School plus two ‘champions’ from within the company.
Level 1, the broadest, is a two year program, split into eight different modules (four foundations, four advanced) each taught over two to three days at centres in Cambridge, New York, Johannesburg and Singapore, with Mumbai being added to the roster in 2016. Level 1 is highly interactive, featuring e-learning, case studies, discussions and lectures aimed at covering around 300 employees in cohorts of 25-30 participants. Level 2 is for managers (assistant vice-presidents, vice presidents to directors) covering similar topics in more detail. Level 3 is for the most senior leaders, approximately 40 individuals ranging from managing directors to department heads and directors.
The Barclays/Cambridge program was rolled out representing and reflecting the corporate hierarchy, but rather than entrenching executive division, it actively helped promote conversations between (and through) once calcified layers of management. There was a positive recognition of the dampening effect lengthy chains of command can have on any change process. Barclays’ particular need was to encourage a form of self-monitoring which Roemer compares to community policing projects in his native USA.
Mike Roemer saw the parallel between the two, “the job of community policemen is to walk a given beat, getting to know who’s who and what’s what in the community. Then, if and when swift, immediate action is needed, they know when, how and who to target”.
The Barclays/Cambridge program is not simply designed to service the internal needs of the company, but also to stimulate the wider development of banking compliance as a serious professional specialty
Where previously the focus of compliance has been on a relatively passive ‘check & challenge’ model, the direction is now towards influencing behaviours. This mandates a shift in the experience and background of those entering compliance. There is less weight being given to legal training, and an emphasis on an individual’s qualities as opposed to their previous experience of the sector – for example, one of Roemer’s key lieutenants majored in psychology.
“Recruiting top talent, regardless of previous experience or a financial services background, has elevated compliance within Barclays. Compliance graduates in the Americas come from non-traditional compliance backgrounds (e.g. ex-military, business school graduates, political science and government majors, philosophy and language majors) but with a unique set of skills which only complements the talent of our fellow colleagues.” – US program participant
The Barclays/Cambridge program is not simply designed to service the internal needs of the company, but also to stimulate the wider development of banking compliance as a serious professional specialty, operating and maintaining professional standards similar to those in specialties such as the law, accounting and auditing. Roemer is quick to trace the outline of a future in which their program has evolved to become an entry requirement for chartered status within an envisioned UK Institute of Banking Compliance. In the meantime, according to Hill, other financial services firms are looking to “tailor similar materials in similar ways.”
“The benefits [of a chartered institute of Banking Compliance] would include standardization of the skills and knowledge base of compliance professionals and recognition of compliance as a discipline.” – Program participant
The foundations have already been laid in the form of a Centre for Compliance and Trust in Cambridge with a remit to explore the ways in which financial services can be delivered in the twenty-first century. Working with banks and other institutions to develop practices and behaviours which put customers and values at the heart of decision-making, the Centre will lead the development of knowledge around appropriate and responsible business practices which respond to both the evolving regulatory environment and customer demands.
With wider ambitions come wider challenges. Broadening the appeal of banking compliance as a career path will mean raising the comparative level of remuneration/ incentive packages available to individuals. Although compliance pay is rising
– it was up 13% in 2013 according to recruitment firm Astbury Marsden – not only do compliance professionals take home less than front office bankers, the experience of investigating past misdemeanours can be gruelling to the point of burnout.1
“Banks don’t like to share their laundry,” confides Roemer. Even so there is growing awareness of, and interest in, the sector-wide change process Barclays has set in motion. While client data will always remain confidential, inter-organizational benchmarking (in terms of compliance departments’ size and distribution) does go on at the sector’s formal and informal get-togethers. Within limits, institutional memories swirled around during the “game of musical chairs” when executive attrition rates among Barclays’ compliance officers reached 30% - they have almost halved since Roemer took over.
“Comparing the significance of compliance with other institutions, I will confidently say Barclays has achieved a lot and has taken great strides of establishing a solid compliance culture which is continuously being developed and bettered.” – South African program participant
The compliance department at Barclays was previously a box-ticking department. It possessed little overt responsibility for ensuring business practices were aimed higher than just about meeting statutory requirements. It had no ability to help ensure the stability, sustainability and responsibility best suited to the needs of customers. And yet, having once trailed behind the opposition, Barclays is now positioned to lead the field and best capture the advantage of future developments. As one Asia-region participant summarised their experience of the program,
“It has made me realise the importance of the work currently being in done in Conduct Risk. Understanding bank failures as seen in the 2008 financial crisis and its causes has made evident the unsustainability of the current system. It has confirmed my view on the necessity to collaborate in the way we do business particularly because of the externalities. Realising this means I check and challenge thoroughly, provide effective training that leads to a better understanding of Conduct Risk requirements and operate with the knowledge of the domino effect one’s conduct has on society.”