The Great Recession of 2008 spelt the end for many financial institutions. High profile takeovers, including Bankia in Spain and MF Global in the U.S, were front page news around the globe, often costing governments billions in bailouts.
HBOS was one of the biggest casualties. On 17 September 2008, Lloyds TSB - which at the time had been forced to write off £865 million during the credit-crunch - rescued HBOS after the company’s share price fell drastically. Soon after, both banks were subject to a government bailout, with HBOS folding after revealing losses of $11 billion on 13 February 2009. While the failings of both companies were made clear in the days, weeks and months after the event, the finer intricacies were kept hidden away. A much anticipated report was released in November 2015, which saw the bank's senior management team take much of the blame for the collapse. The damning nature of the report could see a new probe launched, although due to statue of limitations, the maximum penalty that could be incurred is limited to a ban from working in finance, not a hefty fine.
The senior management team's failure to set an effective strategy was described as one their greatest downfalls. The Bank of England called their business model 'flawed', with unreachable targets for growth always likely to threaten the bank's long-term future. The Financial Services Authority (FSA) shouldn't be absolved from blame entirely either. Had they supervised the situation more stringently, there's a good chance they could have intervened before the situation got out of hand.
The Financial Times described HBOS's strategy as 'nice wrapper round a bundle of plans drawn up by different divisions.' This approach is all too common. The FT also referred to Richard Rumelt's book, 'Good Strategy/Bad Strategy', calling HBOS's approach 'the dog's dinner' - where, under the guise of long-term growth, a company groups together unrelated strategies. The root of the bank's problems can be dated back to its initial inception. Formed by a merger between the Bank of Scotland and Halifax, the two institutions never really mixed. Andrew Hill states: 'The bank’s bottom-up approach, where group strategy was a mere distillation of divisional plans, left HBOS highly vulnerable to a sharp change in the economic conditions.'
Although top-down strategies remain commonplace, new initiatives to gather ideas from 'the bottom' are becoming more prevalent. Adobe's 'Kickbox', for example, incentivizes employees to contribute towards company innovation. In fact, we recently released an article outlining five companies who are looking to empower their workforces from the bottom-up.
There is, however, little point in having a management team if they abstain from making decisions all together, so there must be a balance achieved. As Andrew Hill from the FT states: 'HBOS’s demise confirms, when blended with an unquestioning growth mindset, such dereliction of duty is a recipe for a disastrous dog’s dinner.' A top-down strategy, in many instances, creates cohesion and allows shorter-term plans to integrate so that they can help form a company's longer-term future.