Something is seriously wrong in European banking
Credit Suisse controversy over former executive Iqbal Khan reflects poorly on CEO Tidjane Thiam
The events that have unfolded at Credit Suisse in recent weeks over the bank’s surveillance of former international wealth management head Iqbal Khan are scarcely believable. If lurid details about the bitter dispute between Khan and his boss Credit Suisse CEO Tidjane Thiam over garden reconstruction, tree planting and blocked views of Lake Zurich polluting their working relationship were not shocking enough, Credit Suisse’s decision to tail Khan, a street altercation, a criminal complaint made to the Zurich public prosecutor’s office, and the ensuing death of a Credit Suisse security staff beggar description.
Credit Suisse chairman Urs Rohner publicly acknowledged that the saga has damaged the credibility of both Credit Suisse and of Switzerland as a financial centre. The latter, of course, by definition taints all the other Swiss banks including UBS, where Khan started last week as co-head of wealth management.
Credit Suisse backed Thiam on the basis that he neither ordered the surveillance nor apparently knew about it, leaving it to long-time close Thiam confidant Pierre-Olivier Bouée, chief operating officer, to take the rap for his boss.
Rohner apparently weighed up (how seriously, who knows?) whether to recommend to the board the firing of the CEO. But in deciding that the buck stopped lower down the food chain (albeit at the level of a senior subordinate), Credit Suisse continued a tradition of boards closing ranks to protect someone they see as key to the stability of the firm. And key to protecting the things that must be protected above all else: their own credibility, their generous stipends, and the share price.
The saga seriously taints Thiam. It also taints Khan. The disgraceful sequence of events taints governance standards at Credit Suisse. And by not reversing the decision to hire Khan, I’m not sure it says much about the governance standards at UBS either; which was itself unsettled by the recent Andrea Orcel/Santander farce and the frosty relationship between chairman Axel Weber and CEO Sergio Ermotti as the former openly sets about finding a successor to the latter.
Weak boards acting out of a sense of self-preservation are one thing. But if board collective responsibility fails, what about the integrity and sense of accountability in this case of Credit Suisse CEO Thiam? If such shameful things can occur under his watch, what does it say about the culture of the firm he’s presiding over?
The episode is reminiscent, for a wholly different set of underlying developments, of Barclays CEO Jes Staley flatly refusing to stand down having been fined by the Financial Conduct Authority and the Prudential Regulation Authority last year for failing to act with due skill, care and diligence over his repeated attempts – against internal rules and all advice – to uncover the identity of a whistleblower who had cast aspersions over a friend he had hired.
How extremely well-paid and wealthy CEOs can in all conscience decline to resign under such extreme circumstances beats me. In the Barclays case, shareholders and the board were clearly comfortable with a CEO who’d been fined by the regulator for wrongdoing and were still able to look at themselves in the mirror.
In similar vein, the complicity of shareholders in the Credit Suisse case is astonishing. According to media reports, two big Credit Suisse shareholders apparently said they wanted Tidjane to stay unless it was shown he had broken the law. I find this astounding. Sure, shareholders are in it for financial return. I get that. But in the face of such a scandalous sequence of events, do they care nothing for governance at the firms they’ve invested in? Clearly not.
Such developments are a shocking indictment of board and shareholder behaviour that time and time again lets companies get away with breaches of governance and other codes. In the cases of Barclays, Credit Suisse and UBS, we’re told that the boards are stuck between a rock and a hard place because they don’t have anyone currently on the books who can fall in and take over the corner office if incumbent CEOs do the honourable thing or are fired.
That’s certainly a predicament and one that’s hard to ignore as a matter of succession planning. But hang on; we’re supposed to have entered a new post-crisis era in banking framed by higher standards of behaviour and governance underpinned by a more ethical approach to business and generating returns.
Are we saying such standards can be bent or waived if it happens to be expedient? If that’s the case, nothing has changed. Banking needs to do better and as citizens and stakeholders we should expect more. So just as I said at the time that Staley should have gone, I now say Thiam should go.
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9 Oct 2019