Instruction: Answer ALL questions in the answer booklet provided. Each question is worth 25 marks. HBOS: Power and politics for and against change Between 2003 and 2006, shares in HBOS rose by 53%, far ahead of most of its competitors. The bank had a very strong sales culture, with even junior bankers receiving significant bonuses. Some people in the bank became concerned that the bank was going too fast, taking excessive risk because of the sales-driven culture and without the appropriate balance of systems and controls. However few people wanted to speak out because of fear of being branded troublemakers and concern that doing so would jeopardize their large bonuses. The reward power of leaders thus quashed any emergent resistance and made it difficult for any coalition to challenge or change the culture of risk management practices. Paul Moore, head of global risk at HBOS from 2002 to 2005, was responsible for ensuring the executives complied with regulations of Financial Standards Authority. He did speak out. He was subsequently dismissed: an example of a coercive approach to deal with resistance and to silence any other resistance. Moore received a settlement for unfair dismissal under Public Interest Disclosure Act, but broke his gagging order in February 2009 when the bank nearly collapsed during the credit crisis, only to be saved with a taxpayer- funded bailout and a merger with the Lloyds Banking Group. Moore gave evidence to treasury Select Committee investigating what happened at HBOS. He paints an insider's view of the power of the guiding coalition and senior executives' use of politics to prevent changes to status quo, which was making them personally rich. Among the many incidents he describes are the following: 1. The company secretary failed to minute crucial comments he made at the formal board meeting, reporting his investigation that the sales culture at HBOS had got out of control. 2. He was strongly reprimanded by a board member for tabling the full version of a report at a group audit committee meeting, which made it clear that systems and controls, risk management and compliance were inadequate to control the 'over-eager sales culture. Mysteriously, this had been left out of the papers even though I sent it to the secretary." writes Moore. 3. After Moore was dismissed, an ex-sales manager who had no experience of risk management was appointed as group risk director. 4. A personal friend of HBOS chairman was appointed to be the chairman of risk control committee. Moore recounts that this individual admitted to me that .... they met quite often socially. Of course he was supposed to be challenging (the Chairman) ... He obviously had no technical competence in banking or credit risk management to oversee such a vital governance committee. W Instruction: Answer ALL questions in the answer booklet provided. Each question is worth 25 marks. HBOS: Power and politics for and against change Between 2003 and 2006, shares in HBOS rose by 53%, far ahead of most of its competitors. The bank had a very strong sales culture, with even junior bankers receiving significant bonuses. Some people in the bank became concerned that the bank was going too fast, taking excessive risk because of the sales-driven culture and without the appropriate balance of systems and controls. However few people wanted to speak out because of fear of being branded troublemakers and concern that doing so would jeopardize their large bonuses. The reward power of leaders thus quashed any emergent resistance and made it difficult for any coalition to challenge or change the culture of risk management practices. Paul Moore, head of global risk at HBOS from 2002 to 2005, was responsible for ensuring the executives complied with regulations of Financial Standards Authority. He did speak out. He was subsequently dismissed: an example of a coercive approach to deal with resistance and to silence any other resistance. Moore received a settlement for unfair dismissal under Public Interest Disclosure Act, but broke his gagging order in February 2009 when the bank nearly collapsed during the credit crisis, only to be saved with a taxpayer- funded bailout and a merger with the Lloyds Banking Group. Moore gave evidence to treasury Select Committee investigating what happened at HBOS. He paints an insider's view of the power of the guiding coalition and senior executives' use of politics to prevent changes to status quo, which was making them personally rich. Among the many incidents he describes are the following: 1. The company secretary failed to minute crucial comments he made at the formal board meeting, reporting his investigation that the sales culture at HBOS had got out of control. 2. He was strongly reprimanded by a board member for tabling the full version of a report at a group audit committee meeting, which made it clear that systems and controls, risk management and compliance were inadequate to control the 'over-eager sales culture. Mysteriously, this had been left out of the papers even though I sent it to the secretary." writes Moore. 3. After Moore was dismissed, an ex-sales manager who had no experience of risk management was appointed as group risk director. 4. A personal friend of HBOS chairman was appointed to be the chairman of risk control committee. Moore recounts that this individual admitted to me that .... they met quite often socially. Of course he was supposed to be challenging (the Chairman) ... He obviously had no technical competence in banking or credit risk management to oversee such a vital governance committee. W