A lack of quality at HBOS

 

hbos_i1Andrew Holt finds a report into the collapse of HBOS astonishing, revealing the failure of senior management at the company

 

From a quality perspective, a recent report into the failings of HBOS during the financial crisis makes extraordinary reading.

The report, by the Financial Conduct Authority and the Bank of England’s Prudential Regulatory Authority, concluded that HBOS collapsed, at the cost to the taxpayer of £20.5bn, because its senior managers did not understand risk management and the HBOS board did not have sufficient knowledge of banking.

Where to begin with such a damning critique? The problems as identified, are so fundamental that they seem startlingly obvious.

The problems began with a major rush to build the HBOS brand into a major banking player, so much so, that the essence of its work as an effective bank was overlooked.

A quality approach could have prevented many of the problems HBOS suffered from.

For quality professionals, knowing the relationship between governance and risk is crucial. A simple focus on these crucial areas would have prevented the catastrophic trap into which HBOS fell.

Quality, Juran argued, should be defined as ‘fitness for use’ – something the HBOS board clearly ignored. And Deming noted that quality had to become the mindset, embraced by the entire company. But the only thing in mind at HBOS was the pursuit of profit. Everything else was left behind.

Some saw what was wrong. Paul Moore, the head of regulatory risk at HBOS between 2002 and 2005, alleged he was fired for blowing the whistle on excessive risk-taking at the bank. You can read Paul’s story here, ‘The biggest quality failure of all time?’, from Quality World, September 2012.

Deming’s focus was on the importance of the manager. He fought a culture of ‘blame the workers’ whenever things go wrong, by developing a quality system that could work and ensure all staff were committed to making it work. These principles were not just ignored at HBOS but fully opposed.

The financial regulator has been wrestling with the concepts of financial ethics and accountability over the past year. It has now concluded that yet another inquiry is needed to decide whether to pursue regulatory enforcement action against former HBOS staff.

At the same time, the message from the regulator should make financial organisations sit up and take notice as we push to put quality at the heart their businesses. Then the disasters of HBOS can be consigned to the dustbin of history.

Andrew Holt is Technical Content Executive at the CQI and contributor to Quality World

 

One thought on “A lack of quality at HBOS

  1. Paul

    The overriding worry about HBOS but even more so with banking in general is that apart from a few individuals being shuffled around plus lots of window dressing activities by government departments,
    the fundamental root causes of the 2008 wake up call have never been eliminated. Modern manufacturing corporations face major challenges competing in world markets having huge differences in values & costs. Values that result from their level of development. The last thing they need is instability brought about by the dubious ways of our modern financial system. In essence a situation where a hugely successful company operating with the highest integrity can be negatively affected by a thoughtless speculator out to make a quick killing in the stock market.
    There is evidence of quality influencing high street banking but when it comes to the earth moving activities behind the scenes at the highest levels where bankers have the ultimate power of “bail me out or else”, quality is stillborn. The fact that so many new banks have sprung up in recent years is indicative of easy money to be made. The public ask, “when is a supermarket a bank?”.

    Reply

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