MOORE, CARTER
& ASSOCIATES
C V
J L
The story of a man in a rowing boat trying to
slow down an oil tanker
Paul Moore, Former Head of Regulatory Risk HBOS plc
9th February 2010
Professional Risk Managers International Association
Agenda
 BBC Newsnight clip 11th February 2009
 A bit about me
 A bit more about the whole story
 The RiskMinds 2009 Risk Managers Survey key findings
 Discussion – what have we learned and what should we do about it?
 Some final thoughts - if we have time
 Advice to those who speak up to “group think” – people who helped me
 Personal observations on financial crisis
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
A bit about me
 Barrister & one of UK’s leading risk, governance & regulatory specialists.
 Over twenty four years experience in industry and professional services
 2007 - Today- Telecoms, Consultancy & Charity work.
 2005 – 2006 - Head of Compliance EMEA Marsh Ltd
 2002 - 2005 - Head of Group Regulatory Risk, HBOS
 1995 – 2002 - Partner KPMG, London
 1984 – 1994 – In house lawyer in financial services
 Other – Joe Simpson, hang gliding, motorcycling, sailed across Pacific.
 Risk management is not about not taking them!
 F1 is less risky than angling!
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
A bit more about the HBOS story
 Actually blew whistle twice – first time failed
 Second time - Email to Danny Savage BBC News – 16th Sept 08
“I
think that..the time may now have come when someone who has
been there / done it / and wears the T shirt (“I was a Senior Risk &
Compliance Officer who was fired for trying to slow down a bank”)
speaks out again on what has gone wrong in the financial system and
what needs to be done to make sure it does not happen again.”
 Motivation was policy change not revenge or celebrity.
 Money Programme – 30th October 2008 – rowing boat analogy.
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Key points from my evidence
 I gave initial evidence to UK Treasury Select Committee 10th Feb 09.
 Key extracts from my evidence: Sales culture markedly out of balance with control systems.
 Cultural indisposition to challenge
 Sub-prime risks obvious to anyone.
 Underlying cause inadequate separation and balance of powers.
 Process, framework and structure without the right culture will fail.
 Emperor’s new clothes, lemmings and pied pipers!
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
I reported that the sales culture was out of balance

“...I certainly knew that the bank was going too fast (and told
them), had a cultural indisposition to challenge (and told
them) and was a serious risk to financial stability...(and told
them)

“I told the Board to slow down and ....that their sales culture
was significantly out of balance with their systems and
controls.”

“That ...very careful consideration should be given ...as to
exactly what level of sales growth is achievable, given current
capacity, without putting customers and colleagues at risk.”
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Sub-prime risks

“..even
non-bankers
with
no
“credit
risk
management”
expertise...would have known that there must have been a
very high risk if you lend money to people who have no jobs,
no provable income and no assets....

You simply don’t need to be an economic rocket scientist or
mathematical financial risk management specialist to know
this. You just need common sense.
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Inadequate separation and balance of powers

In simple terms this crisis was caused....because there has
been a completely inadequate “separation” and “balance of
powers” between the executive and all those accountable for
overseeing their actions and “reining them in”

i.e. internal control functions such as finance, risk, compliance
and internal audit, non-executive Chairmen and Directors,
external auditors, The FSA, shareholders and politicians.
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Process without the right culture will fail

The most important point I made:-

“There is no doubt that you can have the best governance
processes in the world but if they are carried out in a culture of
greed, unethical behaviour and indisposition to challenge, they
will fail.
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Emperor’s new clothes, lemmings & pied pipers!

To mix a few well known similes / metaphors / stories, the current
financial crisis is a bit like the story of the Emperor’s new clothes.

Anyone whose eyes were not blinded by money, power and pride
(Hubris) who really looked carefully knew there was something...

But sadly, no-one wanted or felt able to speak up for fear of
stepping out of line with the rest of the lemmings who were busy
organising themselves to run over the edge of the cliff behind the
pied piper CEOs and executive teams that were being paid so much
to play that tune and take them in that direction.
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Some of the key evidence that supported my views
 Head of Risk in Halifax...verbatim:
"Leadership and focus on risk matters has had no priority....Sales are
regarded as more important than anything else“

“risk
management
not
seen
as
a
core
business
imperative
competence....and you know they are animals around here..”
 “Whacker” (CF Dick Fuld, Lehman “Gorilla”)
 Charles Dunstone - two stories
 Reprimands by boss for raising cultural indisposition to challenge
 Refusal to record proper minutes of Bd Mtg and tabling full report.
 “Made redundant” by Crosby – on his own with no HR rep.
 Replaced by sales manager appointed as Group Risk Director.....and
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
or
HBOS competence framework for top leaders?
 Courage - Never backs away from an opportunity to demonstrate
personal courage
 Key behaviours

Taking courageous decisions even when they may result in criticism or unpopularity

Standing up for beliefs in the face of opposition from colleagues

Saying what needs to be said when others are hold back from expressing real feelings

Putting yourself on the line in taking responsibility for making tough decisions

Meeting colleagues in other work areas to talk openly and honestly about the real
issues
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
10th Feb – London Evening Standard front page
“sunk?”
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Evening Standard 10th Feb inside
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
What happened next?
 Sir James Crosby resigned as Deputy Chair of FSA.
 Crosby and FSA denied my allegations and relied on KPMG report
 Brown, Cameron, Osborne, Vincent Cable called for investigation....
 I stood firm, confident and calm. I did countless media interviews.
 FT story – “They would say that wouldn’t they?”
 After vociferous denials by Crosby and FSA....Total silence! But no
investigation.
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Daily Mail – 14th Feb 09
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Sunday Telegraph main story – 15th Feb 09
Sir James Crosby
Me with the whistle!
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Independent on Sunday – front page – 15 Feb 09
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Key conclusions of Treasury Select Committee / FSA
 Failure of Management
 ”Bankers have made an astonishing mess of the financial system....
 Banks have failed because those leading and managing them failed.”
 Failure of risk management
 “The current crisis has exposed significant shortcomings in the
governance and risk management of regulated firms.”
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Key conclusions of Treasury Select Committee / FSA
 Failure of governance by non-executives

“[Banks’] corporate governance was often totally ineffective. The
evidence shows that many non-executive directors failed to act as an
effective check on, and challenge to, executive managers.” “..nonexecutive directors have operated as members of a ‘cosy club’”

“...the necessary challenge was missing from governance structures, in
particular boards.... Evidence from the current crisis indicates that some
NEDs have struggled to fulfil their role of providing strong independent
oversight of the executive management.”
 Failure of the supervisory system i.e. The FSA

But the FSA’s regulatory and supervisory approach, before the current
crisis ...was not with hindsight aggressive enough...

“[this] was ...also [a failure] of the supervisory system”
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
RiskMinds 2009 Risk Managers Survey
 615 responses.
 Independently analysed by Cranfield
 The responses come from around the globe number as follows: UK – 43%
 US/ Canada – 10%
 Mainland EU – 14%
 Rest of the world – 17%
 47% over 10 yrs experience; 30% senior managers.
 Bankers 25%; asset managers 6.6%; insurance 11%; combination 20%;
other sector 22%.
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Key findings
 Most important causes greed, remuneration, failures in risk management
 Majority saw the crisis coming well in advance.
 The risks were reported but the executive prioritised sales.....
 Because they were paid to.
 Cultures inhibited effective challenge....(i.e. unethical cultures).....
 Crisis not caused by global circumstances beyond anyone’s control
 Big majority held executive accountable; not regulators or governments.
 Not surprising as they said they saw the risks and reported them!
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
 Culture (ethics) is most important area for change.
 Capability of non-exec, regulators & line managers in risk is very low.
 Focus for regulatory change should be: Global harmonisation, more prescription on credit and liquidity risk
 More specific standards on effective risk management
 Supervision of culture and ethics
 Rigorous supervision of the effectiveness of internal risk management.
 Higher calibre personnel in the regulators
 Regulators should be accountable in law for their failures
 There should have been a through enquiry to inform policy review.
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Key lessons from my story and survey
 The culture and values are the key – must be led from THE TOP
 Openness, ethics and excellence not fear, blame and excessive pride.
 Cultural disposition to challenge “group think” is key.
 “Never confuse honest dissent with disloyal subversion” - Eisenhower
 Introduce ethical decision making framework. Train everyone.
 Each key document to contain - “Ethical considerations taken into account”
 Rigorously & independently check their culture & ethics regularly
 Note “Self serving statements without corroboration bear no weight”
 Performance management system aligned to cultural requirement.
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
An interesting observation on culture
 “Development is impossible without upright men and women, without
financiers and politicians whose consciences are finely attuned to the
requirements of the common good.
 Both professional competence and moral consistency are necessary.
 When technology is allowed to take over, the result is confusion
between ends and means, such that the sole criterion for action in
business is thought to be the maximization of profit, in politics the
consolidation of power, and in science the findings of research.”
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
The people dimension
 The people dimension is more important than structure and process: Much more competence, independence, integrity and diversity of non execs.
 Risk management and compliance needs to be professionalised
 Its not
about forms & technical knowledge; its about ethics and
excellence.
 Higher calibre personnel advising on risk, compliance and internal audit.
 Key non technical competencies are: Deep understanding of the business
 Relationship management and influencing skills are key
 Giving “confident & understandable advice & assurance”
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Competencies for risk & compliance professionals
Functional Profile
Understanding the business
Developing a deep understanding of our
clients’ businesses, the risks they face and
the needs of their stakeholders
Managing relationships
Establishing and maintaining relationships
with clients so as to become their ‘trusted
adviser’
Giving advice and assurance
Providing clients with confident and
understandable advice and assurance which
demonstrates a passionate dedication to
technical excellence
Functional DNA
Client focus
Being passionately client focused in dealings with
stakeholders
Technical excellence
Demonstrates technical excellence at all times in
their own area of risk / compliance specialism
Outstanding judgement
Using a fine-tuned balance of all aspects of
knowledge, experience and understanding to
solve problems
Creativity
Exploring all options… thinking ‘out-of-the-box’;
breaking new ground in exercising judgement
Integrity and courage
Demonstrating personal courage, independence
and honesty in exercising judgement and giving
advice – leading a culture of openness
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Leadership & Competence Framework
Understanding the business
Managing relationships
Demonstrates broad and deep
understanding about general
business issues and challenges
Facilitates discussions and identifies
common ground and differences to
arrive at sustainable relationships
Digs deep to obtain information and
understanding about the business
and markets of our clients
Identifies and gathers information
about the clients’ people and
stakeholders; their perspectives,
needs and expectations
Understands the risks and
appropriateness of the control
framework within the businesses
Establishes trust by enabling others
to express their emotions and views
and respects these
Negotiates purposeful agreements
that meet the needs of all
stakeholders
Continuously checks expectations
and purpose and encourages ongoing
participation to share the
responsibility for risk
Gathers information from a variety
of internal and external and/or new
sources and puts it into context
Gains support for ideas from
businesses & others by relating the
benefits directly to their interests
and needs
Understands issues and exercises
judgement having regard to the
businesses’ points of view
Uses powers of persuasion rather
than veto
MOORE, CARTER
& ASSOCIATES
C V
J L
Uses questioning & clarifying
techniques to understand views,
attitudes and requirements
Giving advice and assurance
Uses a broad range of risk management
knowledge, experience and tools to
advise and assure the business
Links information, knowledge and
experience to form ideas so that an
event, problem or issue is fully
understood
Steps back from a situation to see the
‘bigger picture’
Helps others to develop broader thinking
and to consider the wider consequences
of their requests or decisions
Proposes and evaluates alternative
solutions and different ways of solving a
problem before making a decision
Encourages others to generate and
evaluate options and to explore different
perspectives others have on these
options
By comparing options generates
new and creative solutions to meet
different situations
Is visible and credible and demonstrates
value; is clear about own position on
issues and can clearly describe the
services of the department to its
stakeholders
Inspires confidence in business
colleagues and other stakeholders that
risk is being identified and managed
effectively
Advisers on risk , governance, regulation & business ethics
Structure, process and framework
 Points on structure, process & framework
 If you want someone to do “A” pay them to do “A”.
 A new lead non-executive accountable for “Oversight, Assurance and Ethics”
 Control functions to report formally to this non-exec.
 An annual risk based, detailed programme of oversight and assurance.
 “Self serving statements without corroboration bear no weight”
 Formal protections for risk, compliance & internal audit managers.
 Better whistleblowing procedures for rest of staff see specific slide
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Strategy
 And, of course, the strategy must be aligned
 Business models that focused on sales and growth to the exclusion of
controls
i.e. risk management, governance and compliance will lead to
crisis.
 And so.......................all elements must be aligned.
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
‘systems thinking’ – the key elements must align
STRATEGY
•The road-map
•Broad objectives
•The overall context
CULTURE
PEOPLE
•Skills
•Knowledge
•Vision
Leadership
• Values / ethics
•Management style
•Competence
•Operating principles
•Commitment
STRUCTURE
•Architecture / framework
•Functional analysis
•Organisational design
•Processes and controls
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Advice to those who speak up to “group think”
 “We only grow by taking risks, and the most difficult risk of all is to
be honest with ourselves and others. Rick Warren
 You get transformed by trouble” Rick Warren
 “Well, If I lose my reputation, at least that will be one less thing for
me to worry about” Blessed Mother Theresa
 “The truth will set you free” Jesus
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics
Some personal observations on the financial crisis
 Our leaders are the high priests of Mammon & Me: Me, more, now. Lend, lend, lend; buy, buy, buy.
 “Take the waiting out of the wanting”
 “You’re worth it”
 In this mess there is a message of Hope.
 Money itself is not the problem. The love of money is the problem.
 Move from GDP (GmeP!) to GQualityP (GyouP!)
 Politics should not about left or right but about right or wrong.
 Private funding of political parties gives the rich and powerful too
much say.
MOORE, CARTER
& ASSOCIATES
C V
J L
Advisers on risk , governance, regulation & business ethics