2008 Global Financial Crisis – worthy of celebration?

With our most recent leaders lunch in Birmingham coming so close to the 10th anniversary of the collapse of Lehman Brothers, which marked the start of the Global Financial Crisis, we decided to reflect across the decade and discuss how things had changed.

We reminded our guests that the very next day we would be “celebrating” the 10 year anniversary of the collapse of Lehman Brothers, the start of the GFC (Global Financial Crisis) and the recession that began in 2008.

Our debate, amongst leaders from a range of businesses representing financial services, engineering, manufacturing, consumer and retail, focused on the impact of the GFC and how businesses' health looks today as a result.

It came as no surprise that the debate was kicked off by the CEO of a bank, who informed us of the range of resultant changes, creating a far more regulated industry. This includes the Senior Managers Regime (SMR) and the splitting of the Financial Services Authority (FSA). From a CEO's perspective, he now feels there is far greater scrutiny than before, both on the industry as a whole and as a leader.

More recently, the focus has shifted to the area of risk, especially in the context of the retail financial services (FS) bubble and the apparent rush to lend money, which is perhaps a disturbing development similar to that seen leading up to 2008.

It seems easier to borrow £500m than £5m!

Conversely, businesses are finding it difficult to borrow money - the CEO of an engineering group saying it seems easier to borrow £500m than £5m! He also pointed out that there appears to be a greater appetite for risk in the UK compared to, for example, Germany.

The world today is far less trusting and there is greater uncertainty.

One of the reasons suggested was the high number of banks / financial institutions in Germany with a 'mutual' structure (40%) compared to the UK (7%). At the other end of the spectrum, there is a greater appetite for lending risk in Asia than UK.

Maintaining the FS theme, the CEO of a Friendly Society, pointed out that as a result of the crash nobody went to jail in the UK. Now, in part as a result of SMR, the world today is far less trusting and there is greater uncertainty. Organisations may be better capitalised but it is unlikely that there would be the same degree of co-operation from the authorities should a repeat of 2008 happen again.

Our Chair shared that Mark Carney's speech, also on the subject of the 10th anniversary, warned that the global financial community should not become complacent and not forget what created the crisis in the first place. Mr Carney added “there are risks around BREXIT for FS but China is at the top of the risk register. The level of debt in China is enormous relative to the size of the economy.”

Chairs are now firmly in the firing line of the Regulator and consequently these businesses will only have FS experienced NEDs.

A sobering thought, prompting the CEO of a manufacturing business to recollect his own experiences of 10 years ago. At the time he was leading his business through a re-financing just as the crisis hit. Foreign owned banks walked away but the UK banks remained supportive and “came through for them”.

BREXIT is never far away from people's thoughts when contributing to debates such as this and the same manufacturing CEO warned, in his view, it is likely another FS crisis will happen but next time UK will be on its own (and not part of the EU).

It was pointed out that a previous Chair of RBS had been from the pharmaceutical sector. Today, as a result of increased regulation, this is unlikely to ever happen again. Chairs are now firmly in the firing line of the Regulator and consequently these businesses will only have FS experienced NEDs. It has become extremely difficult to recruit NEDs from out of sector because of the personal risk of being involved.

The CEO of a utilities company, recently acquired by a group of infrastructure firms, said that now most investment money is coming from Asia and this is very different to 10 years ago. He added that Lehman Bros was a symptom and not the cause of the crash a decade ago. His anxiety today came from the fact that whilst resulting regulation post-crash had created much transparency within his sector, in others, the source of money, especially from outside the UK was not so transparent. If it is not easy to see how the money flows and from what source, there is an increased risk of something major happening.
Furthermore, as time moves on, memories fade, and younger managers come into the business - Northern Rock is part of our institutional memory - but who tomorrow will know what to do if something like that is ever repeated?

The savvy shopper wants convenience and customer service.

The discussion moved away from FS regulation toward the consumer. All concerned felt that over the last 10 years there had been a real shift in how consumers behave.

During this decade consumer businesses woke up to the fact that value for money was key…the “pound shops” were growing sharply and the discounters rapidly took market share from the established multiples. However more recently the savvy shopper wants convenience and customer service… whoever can give them that will probably win out.

A Commercial Director from food manufacturing added that trust and transparency are fundamental values to all of us. In his opinion both values have been diminished since 2008. Aldi in particular, have utilised technology to simplify both transparency and trust and along with Lidl, have seen great successes since the GFC.

There was agreement around the table that as M&S Food and Waitrose (until very recently) were also enjoying success, it should be a lesson to all of us to incorporate these values in long term strategic planning. An industrial CEO pointed out that this polarisation seen in the food retail market is also evident in the automotive market.
 
Picking up on the theme of the younger generations, an HR Director in the energy sector commented on generations X,Y and Z and their different approach to life. These generations are more sensitive to the values exhibited by organisations and therefore will choose an employer rather than a job. There are challenges in engaging with them to keep them loyal and you have to interact differently with them versus previous generations.

Trust and transparency are fundamental values to all of us.

Another guest agreed and pointed out that they were inclined to avoid costly assets to feed their consuming lifestyle. For example major purchases such as cars are bought on contract or simply not even considered, as Uber or Zip cars are more acceptable. It would seem they don't want the burden of debt and would rather spend their money on experiences and having fun instead.

In conclusion, it would seem that now is not the time for complacency. Mark Carney and many others think a financial crisis could happen again.

Mr Carney highlighted 4 main risks, 3 global and 1 national;

  1. Household debt in the UK is high
  2. Cyber security, what if a bank was knocked out of the system and couldn't operate?
  3. China's economy, whilst praised for its growth he warned about risks around how it's using debt to support growth
  4. BREXIT which has effects on Europe as well as the UK

So what are you doing to guard against complacency? We'd be delighted to hear your thoughts on the Hoggett Bowers LinkedIn Page.