So, that’s that then. Bob Diamond, CEO of Barclays Bank, last week told the House of Commons Treasury Select Committee that the time for remorse and regret is over. Naturally, this means the time to talk bonuses is back (if it ever went away). Diamond’s flagrant disregard for public sentiment has sparked anger and controversy. Much of the vitriol has been directed at a coalition government that appears to have done little to prevent another round of City bonuses, even in the organisations it owns. This is despite having made a clear pledge in the coalition agreement to take “robust action to tackle unacceptable bonuses”.
The coalition is in danger of looking like it’s taking us from broken Britain to broken promise Britain. Coalition politics allows one party to hide behind the other on the policies it pledged to campaign against (just as the Lib Dems did with student fees), but on the issue of bonuses both parties were pretty clear. Although an unwillingness to interfere with City excess has been a failure of all modern governments.
In the mid-term political context, the decision not to curb excessive bonuses for bankers is hardly surprising. But in other ways excessive rewards in the City—and elsewhere in the modern corporate world—expose a major flaw in all our organisations. Defenders of the outrageous rewards being paid in the Square Mile, amounts that make the quantities promised to help the small business community seem like small change, argue that the market demands these payments. It’s the only way to attract the superstar leaders and top talent needed to turn things around. That these were the very superstars running the show when the world fell apart seems to be missed.
This flawed thinking about the importance of top management talent is brilliantly exposed by Christopher Bones in a new book The Cult of The Leader: A manifesto for more authentic business, which is due out next month (reviewed in February’s issue of Director). Far from being some radical outsider, calling for the dismantling of the free-market system, Bones is a former director of Cadbury-Schweppes and a respected business academic at Henley Management College. He wants to wake the world up to the fact that we risk being dragged back into a phoney talent war, in which we pay an ever-larger share of business returns to a handful of senior executives—a trend that risks undermining the future of the entire system of wealth creation.
This generation of ego-driven leaders, obsessed with their own ability and its impact on corporate performance—often failing to recognise the importance of their environment or the more important task of bringing the best out of employees throughout the organisation—he describes as the “L’Oreal generation”. Put simply, they think they deserve fat pay cheques simply “because they’re worth it”. And they use these rewards to acquire a lifestyle—what happened to having a life and making a living, Bones asks—that allows them to keep up with the celebrities that society has become obsessed with.
But in focusing on themselves and their own significance to the organisation, and allowing their own pay to spiral way beyond that of other staff, such leaders are undoing the good that genuinely equal and well-intentioned wealth creation does. Unless there is some return to authentic leadership, and CEOs lead with humility, for the benefit of all shareowners and stakeholders and not just themselves and a small coterie of over paid fund managers, the prospects for a long-term sustainable free market economy look increasingly bleak.