City boss Gerry Grimstone: The buck has to stop with board directors
Who is to blame when a banker many tiers from the top of the firm misbehaves? The banker alone? Their manager? The boss of their division? The chief executive?
It can be chaotic working out who should be punished in a vast organisation across dozens of countries and hundreds of thousands of workers.
But there is no doubt in the mind of Sir Gerry Grimstone, the chairman of FTSE 100 insurer Standard Life and lobby group TheCityUK. He says the responsibility should go all the way to the top. “The buck stops with the board, that is where responsibility lies,” he says unequivocally.“I do not have much patience with people who say, ‘This was happening three or four layers below me, how could I have known?’”
“It is a board’s job to know what is going on. It is their responsibility to put structures in place to bring knowledge to them.”
Grimstone is speaking ahead of a City UK conference in London, where he will be discussing, amongst other things, London’s competitiveness in the world.
His no-nonsense comments come amid an intense debate around accountability in giant organisations.
HSBC’s directors came in for criticism in parliament after arguing they could not have known their Swiss private bank’s staff helped clients evade tax.
And bankers’ bonuses are increasingly subject to clawback – if they are awarded pay for success, but it later turns out they misbehaved, then they can be held financially accountable.
There is no way ignorance can be an excuse in Grimstone’s book. He points to the Churchill quote referring to the fall of Singapore: “I ought to have known. My advisers ought to have known, and I ought to have been told, and I ought to have asked” as the key code by which non-executives should live. “It should be engraved above the beds of all directors,” he says.
While ineffective boards are the main target of his fire, Grimstone gives a surprisingly friendly hearing to financial regulators, the Financial Conduct Authority (FCA) and the Bank of England’s prudential regulation authority (PRA).
Businesses frequently complain that regulation is heavy-handed in the UK, particularly with the tide of red-tape coming from Brussels.
But Grimstone takes an unusually positive view.
“If the UK wants to be a global hub for financial services, it needs to be competitive. But that does not mean soft,” he said.
“If a firm can operate in the UK to the standards the regulators expect, then that is a badge of honour. If one competitive advantage of the UK is strong, appropriate regulation then we should applaud [FCA boss] Martin Wheatley and [PRA chief] Andrew Bailey, who are in the firing line doing that.”
There is certainly a degree of self-interest here – Grimstone believes that a firm-but-fair regulatory setup provides a great boost to firms like his own Standard Life.
“People entrust money to us for 30, 40, 50 years – why would they do that unless they are pretty certain the money will be there at end of that?” he asks. “It is important to bring regulation down to those factors. Why do we have regulation? In a long-term savings business, it is to make sure customers are treated fairly.”
Nonetheless, he returns to the theme that this should be the domain of strong directors, rather than regulators. “I’m old fashioned, I believe the centre of regulation is the board. If a regulator knows more about a company than the board, there is something wrong with the board,” he says.