(MoneyWatch) COMMENTARY Barclays Bank CEO Bob Diamond has finally stepped down. Any notion that he could avoid doing so was clearly delusional. Not only is he the operational head of an organization accused of lying -- the part of the bank accused of trying to manipulate the market was specifically his responsibility.
Last week, Barclays, the U.K.'s second-largest bank by assets, admitted that it had deliberately reported artificial borrowing costs from 2005 to 2009, in order to try to set the London interbank offered rate (LIBOR), which affects the value of trillions of dollars of derivatives contracts, mortgages and consumer loans. This was a scam on an epic scale and, like epic frauds before it, is now being blamed on a few bad apples. Meanwhile, the Department of Justice is investigating, among others, Citigroup, HSBC, Deutsche Bank and UBS to see if they colluded in the scheme. Rumor in the City says that Barclays was just the first to fall because it offered to come clean about its co-conspirators.
In the U.K., it's fair to say Diamond was always cordially disliked. Considered by many to be too flashy and aggressive for what remained of City gentility, he attracted opprobrium for his insistence that Barclays was somehow above the banking scandal. It had not had to be bailed out in 2008 -- having secured foreign investment instead -- and, denied the chance of buying Lehman Brothers at the last minute, was able instead to pick up the investment and trading arms (as well as the headquarters) for a song after the firm's collapse. Unsure whether living in Manhattan or London was more appealing, Diamond moved first to New York and then had the bank pay for him to move back to London. Diamond was a flashy face for a business that suddenly needed to lose luster and he consistently underestimated how profoundly the public mood had shifted.
Recently given to solemn statements about the importance of values and ethics, Diamond made the mistake so many CEOs make: He thought that speaking solemn words about morality was enough. We've seen an epidemic of pomposity around ethics and values and culture and everyone in the game seems to imagine that those words alone are enough to change the game. They don't seem to appreciate two things:
Few fraudsters think they're doing wrong at the time. They either persuade themselves that they have no choice (I had to keep in the game) or that what they're doing doesn't matter (no one gets hurt) or that everyone's doing it. The Barclays emails suggest that the bank employees thought that manipulating LIBOR was all a great game and that it was immensely clever. If anything, it demonstrated how creative they could be. Many such employees don't even notice that they are going wrong; they start off as good kids and move so slowly off the strait and narrow that they don't see the change. We are all highly driven to preserve a positive self-image and blind ourselves to anything that threatens it.
Diamond is not charged with, or suspected of fraud but he appears to have been willfully blind to antics within his organization. The legal definition of willful blindness is ignorance of information that could have been known and should have been known. Diamond should have, and could have, better understood what was going on in his workforce.
Behavior change is the hardest thing in the world. Think about it: Most fat people want to get thin and can't. Most people want to save and don't. They're trying to change in the simplest way possible and they do seriously want to change -- and very, very few make it. Now consider how much behavior change is required to weed unethical behaviors out of banking. Talking ethics definitely won't budge the needle.
Diamond appears to have understood neither of these points. Despite his obvious intellect, Diamond couldn't last because he was insensitive to the environment in which he operated. Nor does he appear to have understood anything about people, human psychology, organizational design or consumer markets. In short, while long on hard skills, he appears to have been devoid of soft ones: The ones that are hard to acquire, hard to change and which many quants think don't matter. What he's learned the hard way is that hitting your numbers isn't enough. Management, it appears, still matters.