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"I chaired a survey a few years ago about why companies fail. "The main reason was one word; hubris - overconfidence, the belief that you can walk on water. It's very difficult to control those sort of people. "At the end of the day, it is the chairman and the chief executive who control. If you choose the right chairman and chief executive you will not get into so much trouble." Sir Brian Pitman, ex-Chairman, Lloyds TSB Group, BBC1 - Andrew Marr Show -19 October, 2008 As the global banking crisis continues, many Chairmen, Chief Executive Officers and Boards are said to have suffered from unchecked egos or put simply, hubris. Recent articles have described the hubris of Sir Fred Goodwin at The Royal Bank of Scotland, Adam Applegarth at Northern Rock, Dick Fuld at Lehman Brothers, Stan O'Neale at Merrill Lynch, Jimmy Cayne at Bear Stearns, Chuck Prince at Citigroup and Marcel Ospel at UBS. (see below) Now the regulators are using the word. The days of City "hubris" must come to an end, the Bank of England cautioned in an extraordinary attack by Mervyn King, the Governor, on excessive pay packages and heavy risk-taking. Already, "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street" by William D Cohan is to be published on 10 March 2009. Hubris Defined Hubris is a term used in modern English to indicate overweening pride, self-confidence, superciliousness, or arrogance, often resulting in fatal retribution. In ancient Greece, hubris referred to actions which, intentionally or not, shamed and humiliated the victim, and frequently the perpetrator as well. It was most evident in the public and private actions of the powerful and rich. Are all senior bank executives full of hubris? To become a senior executive one does need to possess confidence in one's self and one's abilities. But one should have some humility, an appreciation of others' skills and opinions and an understanding of one's own fallibility. Can Hubris be measured? There have been many articles and some research on how hubris can be measured. One examined the length of time executives held on to their share options after they had vested. It concluded that the longer they held onto them meant that they believed they and the company were infallible. Others claim that you have to look at their other actions. Many believe that the building of the new grand head office is indicative of executive hubris, as at Royal Bank of Scotland and its £350 million, 100 acre headquarters on the outskirts of Edinburgh. Many say that the towers and office blocks at Canary Wharf in London are a prime example. The ownership of a corporate jet is always seen to be another indicator of executive hubris. Again, the Royal Bank of Scotland has one! Only recently, the Chief Executives of the three main Detroit car manufacturers were lambasted for flying to Washington on their corporate jets to ask for billions of taxpayers' money. For their second appearance in front of the congressional committee, they all drove down and back. It is also claimed that chief executives, who surround themselves with "yes men" and fire those that question their decisions, suffer from hubris. Dick Fuld at Lehman Brothers and Stan O'Neale at Merrill Lynch had reputations for this. Premiums paid on acquisitions can also be indicative of hubris. The famed investor, Warren Buffett, once said that many corporate acquirors think of themselves as beautiful princesses, sure that their kisses can turn toads into handsome princes. The acquirors pay substantial premiums over market value, believing that they can release the imprisoned princes. But, as Buffett said, "We've observed many kisses but very few miracles" (1981 Berkshire Hathaway Annual Report). Again, one can look at the Royal Bank of Scotland and its consortium acquisition of ABN Amro, where many analysts said that they were over paying. In the end, as the credit crisis began to deepen,they paid a 33% premium but will soon announce billions of pounds of adjustments in writing off a significant proportion of the goodwill. As yet, there is no one clear winning, theoretical or mechanical measure of executive hubris. However, one can pull together a number of the above to provide a guiding framework. Shareholders and Equity Analysts There are two groups of people who should be able to assess if a company or its senior executives suffer from hubris. They are the institutional shareholders and equity analysts. They both review the financial information and the actions of individual companies. Equally as important, they both have or should have direct conversations with the senior executives. They will be aware of the planned new headquarters, the premium paid on acquisitions, the number and frequency of changes in senior executives and much more. However, it is at the analyst and shareholder meetings and company presentations, where they can get a greater feel for the arrogance or humility of the senior executives. It has been interesting to attend a number of the Annual and Extraordinary General Meetings of the UK's financial institutions, as well as watching webcasts of US meetings and analyst calls. The attitudes of some Chief Executives and Chairmen have included arrogance, defensiveness and superiority. Whilst other Chief Executives have shown openness, inclusion, and honesty. It was the former who had displayed hubris and caused much pain to shareholders, employees and other stakeholders. The Royal Bank of Scotland - Sir Fred Goodwin Above all, there's the age-old story of hubris followed by nemesis. More than any other banker of his generation, Sir Fred, tall, lanky, plain speaking and sardonic, came to embody an ambitious, sometimes arrogant-looking style of banking. He was ever ready with the dry quip, ever eager to embark on ambitious deals. Whether it was moving to a plush new headquarters building outside Edinburgh, or writing big sponsorship cheques to the tennis star Andy Murray or for Formula One racing, the boy from Paisley was game. The Times - 20 January 2009 Northern Rock - Adam Applegarth On the surface, Northern Rock's woes are a tale of management hubris, of how boss Adam Applegarth's binge-borrowing on the international money markets flattened the bank and his own career. When he finally quit in the autumn, he pronounced himself broken hearted. The Guardian - 23 December 2007 Lehman Brothers - Dick Fuld "Fuld went wrong in not taking seriously enough the impairment of his balance sheet," said Charles Peabody, analyst at independent research firm Portales Partners. "He had the typical hubris that any long-term CEO has: 'I built this thing, and it's got more value than the marketplace understands." Reuters -14 September 2008 Merrill Lynch - Stan O'Neale O'NEAL'S HUBRIS - MERRILL CHIEF PURGED ALL OPPOSING VIEWS - Even as Stan O'Neal ponders the worst weekend of his Merrill Lynch career, colleagues say he could have avoided his ouster crisis just by listening to top executives - instead of firing them when they spoke up. New York Post - 28 October 2007 Bear Sterns - Jimmy Cayne It was a free fall aggravated by a stunning sense of hubris. Former CEOs "Ace" Greenberg and Jimmy Cayne stubbornly refused to diversify. They continued to run Bear as a high-stakes trading firm, going all-in in mortgages and one-sided bets with their hedge funds. When trouble erupted last summer, rivals tapped outside sources of capital. Cayne played golf and bridge. He fired lieutenants. Wall Street Journal - Market Watch - 16 March2008 Citigroup - Chuck Prince Five years ago, shortly after he took over as chief executive officer of Citigroup Inc., Charles Prince joked that his bank was so huge, it would take more than a run-of-the-mill industry acquisition to meaningfully increase the bottom line: For that, he would have to buy an entire country. "It would be hard to transform Citigroup," he told an investor conference, eliciting much mirth. "We would have to merge with Canada. We're too big." Those days of hubris and grandiosity are long gone, as is Mr. Prince, who was ousted from the corner office last fall amid billions of dollars in losses from the subprime-fuelled credit meltdown. GlobalAdvisor.com UBS - Marcel Ospel On Tuesday Peter Kurer, the new UBS chairman, fulfilled his first promise. The 59-year-old former company lawyer drew a line under the era of Marcel Ospel, who resigned as head of the Swiss bank in April after seven years in office.... But no other major European bank has suffered from the credit crunch quite as much as UBS. Over the past 12 months, what was once the epitome of a serious, solid Swiss banking house has turned into a symbol of greed and excess and become a byword for hubris in the world of fast money. The Telegraph - 22 September 2008
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