Andrew 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