Transcript - Lady Susan Rice, Managing Director, Lloyds Banking Group Scotland

Nicholas O’Regan, Professor of Strategy and Innovation, talks to Lady Susan Rice, Managing Director of Lloyds Banking Group Scotland, to discuss the current issues within the banking industry including remuneration (bonuses), the acquisition of HBOS and corporate social responsibility

Q. What’s your vision for banking over the next five years?

Susan: I think that the whole banking system will undergo a certain amount of change.  We see that with the new basil-free regime, we see that in terms of liquidity and capital, and some other requirements on how you operate as a bank.

I think one of the big changes will be that our regulators will look at not just individual institutions and what they’re doing but at the system, what the activities of the individual institutions are and what effect they have on the system.

They need to look within and they need to look across as well.  Overall for banks I also see a greater variety in terms of larger banks which do many things, and smaller more community-based banks.  I see that as a trend over the next five years and even longer.

Q. How can the remuneration be better managed within the sector?

Susan: There’s a very interesting debate about the remuneration of bankers.  The first thing I would say is the vast majority of bankers - about a million people in the UK work in financial services - don’t receive very high bonuses at all.  I think it’s important to point that out, particularly on their behalf.

I think what will happen with remuneration over time, and it's beginning to happen not just within banking but other big corporations as well, is that the remuneration regime will relate quite distinctly and quite transparently to the company’s strategy.  It will not only reward short term performance that has just happened, but it has to be shown to relate to the businesses strategy which means it has a longer term element.  I think that’s the big shift we’ll see.

Q. Where do you stand on the issue of ‘moral hazard’ in the banking industry?

Susan: I think that one needs to look at that in a slightly different context - what you’ve just asked is exactly how the debate has been couched for the last almost two years.  In fact what the governments do in any country is they need to keep the economy flowing, so they will step in if there are issues around payment systems for instance.

It’s not their jobs to pick a large bank and say we’ll save this or that one.  I don’t know any bank that sat there and said, "We’ll take lots of risk because we’ll be bailed out"; I don’t think that’s how people thought at all.

But one does have to look at what is the tipping point between what individual institutions do, how they affect the economic and financial stability and where a government might have to step in, it’s a very fine balance.

Q. How can Lloyds improve its situation after the problems caused by the HBOS acquisition?

Susan: Well actually we’ve done a great deal since we acquired HBOS, which was in the beginning of 2009.  The first thing we did was to was to impose on Lloyds what we call 'risk appetite', so that the entire institution was operating to the same guidelines in terms of credit.  We have embarked on what is the biggest integration of two cooperates in Europe, and that’s progressing ahead of schedule and it’s looking very good.  But we’re working very hard to try to restore and refurbish that brand Bank of Scotland - because the H has now dropped off the name and that all has to do with an institution that in the past has been highly respected and looked after its customers, so that’s the focus we’re putting in now.

Q. How can another banking crisis be avoided?

Susan: I think probably one of the few truisms in the world is that there will be another banking crisis at some point.  I think, without being an absolute historian of these things, ever since the Industrial Revolution - and in fact before that as well - we have periodically had banking crises.  So I’m not sure we can absolutely avoid one, but I do think something good comes out of what we’ve been through recently.  For instance, a lot of the people who have worked for me would have had ten to fifteen or more years without ever having seen an economic bust, the down part of an economic cycle.  I think everyone who has lived through this, which is another generation of bankers, will look at how they do business differently.  I think this carries us through, I hope for a period of time.

Q. What do you see as the essence of corporate social responsibility?

Susan: I think that corporate responsibility is fundamental to having a good and successful business.  If I talk about it from my own world, in my bank we draw our customers and we draw our staff from all over the whole country.  It makes sense for us to ensure that we help strengthen society and help solve some of society’s problems, in order to have a strong business ourselves.  So I think that there is an economic argument for businesses to be involved in corporate responsibility, as a lot of your staff like to engage in that way.

Q. Is corporate responsibility harder during lean times?

Susan: I think some might instinctively think it’s harder because we tighten our belts and so forth.  Actually during lean times two things matter.  One is that it's probably never been more important than now to pay attention to corporate responsibility obligations and to keep focus there.  Because that’s when parts of society may fall back and you have more of that due down the line as it happens.

But the other thing is that in lean times, very often one sees all sorts of enterprise developing.  You see a lot of new businesses starting up.  You see a lot of business people going into other things - that can happen in areas of deprivation as anywhere else and actually very often happens more frequently there.  So it’s actually a time that could be quite fruitful in terms of development and improvement.

Q. What do you see as the attributes of good leadership?

Susan: I think first of all that leadership needs to change for the circumstances, so there’s something about really being tuned into what’s going on, what’s happening, what the industry needs, what are your staff needs, what are your stakeholders' needs, and what your customers are interested in.  You really need to pay attention to all of your stakeholders.  I think that’s one thing.  I think the ability to listen is enormously important.

Too many people believe that leadership is about standing up and having the answers even though you don’t.  I think the most important thing for leadership is being able to say to a group of peers or group of staff, "Actually I don’t know the answer, what do you think?".  Digest that and then somehow synthesise that and come out with the way forward.

Q. How important is the relationship between the Chairman and the Chief Executive in ensuring good governance?

Susan: I think that all of these relationships between the Board and the Chairman and the Chief Executive, if conducted properly and with mutual respect, can help ensure good governance.  It’s really important that a Chief Executive of a company is not so powerful or so obtuse that the Board cannot understand, and if that is the case then the Chairman certainly has to say to the Chief Executive, "You need to explain things differently: the Board has concerns it doesn’t understand".

I think as well that for a Chief Executive there aren’t many peers you can go to, if you’re thinking something through.  If you have a worry or concern, who do you turn to?  And very often you can turn to your Chairman who has a different perspective and perhaps has some wisdom too offer.

Q. How has your career shaped your views on the concern about women and the ‘glass ceiling’?

Susan: I’m asked often about glass ceilings and about women in business and women in senior leadership roles.  It’s a very difficult question, it’s been around for decades and yet we haven’t seemed to solve it.

What I often say if I’m talking to a group of women, either female managers or women in business, is that as soon as women talk about a glass ceiling - whether or not it exists - as soon as they do, they’ve in essence given up.  They are basically saying that it's in effect out there and we see it and we can’t ever get past it, or it’s really hard.

Women have to aspire, they have to have ambition, they have to see themselves in the job, and they have to be willing to work really hard because most senior jobs involve very hard work.  That isn’t to say that they don’t but they need to see themselves doing that.

Q. What are the key attributes you would look for if you were hiring a graduate?

Susan: What I look for in people that I hire is that they are literate, that they are numerate, that they can communicate, and that they can imagine.  Those may sound like very odd things too look for.  I try very hard to avoid people that have studied business and just business as an undergraduate because they can learn a lot of that with me. What I really want is people who can come in and actually grasp an understanding and think about the business.

Q. What advice do you have for MBA students as they enter the business world?

Susan: They shouldn’t assume they know it all because they have an MBA. That’s really important because every business, every company has different views possibly to those they have learned.  They should be willing to listen to key learning - learning doesn’t stop because they have the MBA.  Communication is fundamental: that they can write with clarity, they can express themselves verbally.  If they don’t think they have that then, whether it’s an MBA or any other kind of programme, they should work hard to try and get those skills early on.

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