The Government, The (part) State Owned Bank and the Missed Opportunity

Lloyds Banking Group this morning announced a return to profit in the six months to the end of June 2013.  The news was immediately greeted positively by the markets and the bank’s share price rose strongly on the news, achieving gains of nearly 8% by mid-morning.  It was also welcomed by Chief Secretary to the Treasury Danny Alexander who talked about it as “a welcome sign that the bank is returning to health”.  He also talked about returning the bank to the private sector and returning value to the taxpayer, a regularly discussed topic in recent weeks.

The key driver is undoubtedly the share price, so that the price paid by taxpayers can at least be returned.  Share price and taxpayer value have been two oft-used phrases in interviews with members of the Government about it.

In the course of all the discussion and debates around Lloyds, and indeed RBS, I’m surprised about how little people in Government, and David Cameron, George Osborne and Danny Alexander in particular, have talked about culture change and about whether Lloyds has actually made any meaningful changes towards becoming truly customer focused.  And it’s even more surprising, nay mystfying, because at other times, and in other forums they have talked expansively about just that.  As recently as late June 2013, Mr Cameron, at an EU summit in Brussels, said he agreed with the Governor of the Bank of England, Sir Mervyn King’s scathing attack on banking culture.  He talked about ‘shoddy treatment of customers’, ‘deceitful manipulation’ and the fact that a ‘real change in culture’ was needed.  In February, the Chancellor George Osborne, in a speech to JP Morgan workers said that this is the year we are going to “reset the banking system”.

Why aren’t they talking about how changes at Lloyds mean that the bank is at the vanguard of the banking culture change movement, an example for others and ready to move back into private ownership as a beacon of how banks will work in the future, focusing on customers and not taking excessive risks – and will as a result regain the trust of their customers?  Instead, they talk about share price and taxpayer value.  And in so doing they illustrate what’s really important to them.  The priority is taxpayer value and shareholder value.  So much so that changes in culture at Lloyds aren’t worth talking about.  Or alternatively that they haven’t really changed but it doesn’t matter.

It’s certainly not obvious that culture change is underway at Lloyds.  In the Group Chief Executive’s Statement which accompanies the half yearly accounts, António Horta-Osório leads on improved financial performance, strengthened capital position, reshaped business portfolio, improved efficiency and cost reduction.  He also mentions simplifying the business for customers benefit, being committed to the branch network and improving service and satisfaction.  Oh yes, and reducing complaints (excluding PPI).

The bit in brackets is important.  Especially when read in the context of a recent article in which campaigner Martin Lewis told customers that having a PPI claim rejected by Lloyds was “part of the dance” following an expose of the bank’s PPI complaints procedures.  The article went on to explain: “An undercover reporter training to be a PPI complaint handler for Lloyds Banking Group was reportedly told by trainers at the group’s largest PPI complaint handling centre at Royal Mint Court in London that some bank salesmen had faked PPI information in agreements on loan sales and that complaint handlers had been told to effectively turn a blind eye.”  It went on to quote Natalie Ceeney, the Chief Ombudsman of the UK Financial Ombudsman service that she “wasn’t seeing the scale of change from banks that she would expect” following the PPI scandal.  This included Lloyds of course.

I have searched online for articles suggesting that the culture at Lloyds is changing.  I haven’t been able to find any.  I did find one (admittedly from late 2011) suggesting that “Lloyds Banking Group’s culture saps the energy and enthusiasm of even the keenest staff”.  Oh dear. So employees and customers alike aren’t passionate about Lloyds.  That’s unfortunate too given that the Government has also backed the Employee Engagement Task Force, which aims to improve level of employee engagement, well-being and productivity.  David Cameron said about that: “This taskforce has my full support because I know that it will work to bring together two of my government’s top priorities – delivering sustainable growth across the UK, and coming up with new approaches to help people improve their well-being”.  He added: “I am delighted that the Employment Engagement Taskforce has come together to develop practical ways to help all employers learn from the best, to break down barriers to engagement and to raise the profile of this whole agenda.”

What’s clear is that the Government has missed a huge opportunity to influence culture change at Lloyds.  Change that would have illustrated their commitment to reset the bank by influencing how the emphasis it places on customers and employees and how it therefore operates as a result.  Change that would have illustrated their genuine commitment to make change happen far more effectively than the slow and protracted investigation, the production of a long list of recommendations and their even slower implementation.

A friend told me that whilst this was fine in theory I was naive to believe that the Government could influence how Lloyds operated in practice.  Maybe so, but why not, especially when it owns 39% of the the bank?  It could have used the stake it holds in Lloyds to reset the dials in terms of what banks provide to customers.  It could have led by example and set the bar for all banks – irrespective of whether they are owned privately or jointly by Government – in terms of their purpose, their focus and, above all, in terms of them improving their reputations through getting it right for customers and creating an environment in which employees are engaged.

Politically too, the Government may have missed out in the way it has focused on the taxpayer and the shareholder as being the principal benefactors when it returns the 39% of shares it is holding to private hands.

The Government might have made more impact politically by focusing on the culture of banks. It should have been seen to be outlawing excessive risk taking.  It should have set out an agenda restore public confidence in the banks – not fuel the ‘bank bashing’ that has been around since 2008.  It should have made banks focus not only on driving profit, but providing customers with better service, better value and a better all round experience to get them talking about the banks positively again.

Perhaps the Government was stuck between a rock and a hard place and had to take political decisions that might not have been ultimately in the best interests of the banks or their customers.  The groundswell in the popularity of ‘bank bashing’ and the temptation of Government to align itself more with the popular culture surrounding that as a means to maintain their mandate, might ultimately have caused them to miss the opportunity to actually do something positive to change banking culture, the experience customers get from their banks and their reputation.

For most ordinary people, the physical manifestation of how well or how badly a bank is doing is what happens when they go in the branch or ring the Call Centre – that’s the easiest place to change perception.

What a missed opportunity!