Now that Lloyds has gone cap-in-hand for a bailout, along with most of the other banks, the Conservatives and their allies in the media are attempting to pin the blame on the government. I suppose they have to do that; it’s their job.
It’s complete rubbish of course. The very idea that Gordon Brown could bully seasoned businessmen like Victor Blank and Eric Daniels into doing something they didn’t want to is laughable. In truth, the Lloyds bosses had wanted to take HBOS over for years. Its collapsing share-price and the government’s willingness to waive competition rules were all the encouragement they needed.
The fact that the takeover was such a commercial disaster, at least in the short term, adds weight to the suggestion that the government forced Lloyds management into the deal. But such a view is based on the assumption that mergers and takeovers are driven by commercial factors. That, too, is complete rubbish.
When discussing a merger a few years ago, a former colleague of mine, who I won’t name because he is now an HR director at a well-known company, said to me:
This is not about increasing shareholder value. It’s not about securing the long term future of the company. In fact, there are no commercial considerations behind it at all. No, this is really about big swinging dicks!
And there you have it. Takeovers are a power trip for the senior executives who plan and execute them. They are about launching clever and merciless attacks on your opponents. They are about defeating your enemies and having them pay homage to you in your throne-room. They are about riding in triumph in your chariot through the streets, knowing that your power is that much greater now than it was yesterday. They are about building your empire and having your battle standard stamped over an ever greater area on the map. They are about seeing your picture displayed by adoring sycophants while they proclaim your greatness throughout the land. Well, in the business pages of the broadsheets anyway.
There was little economic justification for Caesar’s conquest of Gaul and almost none for Claudius’s conquest of Britain. Both provinces ended up being a drain on Rome’s finances. But they didn’t conquer them to make a profit; they did it for the glory of empire. The ambitions of today’s marauding CEOs are little different.
If commercial factors really were behind mergers and takeovers, a lot more of them would succeed. As it is, many fail. Some researchers estimate that as many as 80% of mergers and acquisitions leave companies in a worse state than before. As we can see from the example of RBS, successive badly conceived mergers can bring a company down.
Many takeovers are executed in haste. The bare minimum of due diligence is carried out and factors such as organisational culture are almost never considered. But this should not surprise us. Who wants to ruin the excitement of battle with boring investigations? Who wants to talk about a potential culture clash with the company being acquired when there are strategic assaults to be launched?
No! You need to move fast or the battle will be lost. Opposition is there to be crushed. The enemy must be enslaved and bent to your will. Those that refuse must be slaughtered and their children forced to bow before their new overlords. OK, perhaps I exaggerate, but only a little.
The senior managers at Lloyds must have been cock-a-hoop when they realised that the government was going to stand aside and let them move in on their rivals. Becoming masters of a mega-bank with 30% of the UK’s mortgage market? That was way too good to resist. OK, it had some toxic waste attached to it but that was a minor consideration.
They should have looked a little closer. Those toxic assets have now brought Lloyds down. But they didn’t and now it looks as if the two Lloyds chieftains may become a casualty of the merger too.
They wanted the power and the glory but they didn’t stop to consider that they might be conquering a land which was, in fact, a worthless bog. Even Claudius wasn’t daft enough to do that. Now they will share the fate of great generals past who failed in battle.
Except that’s where my colourful analogy breaks down. There will be no post-battle funeral pyre for Blank and Daniels. If recent events are anything to go by they will slip off into the night with a large amount of booty, to enjoy the rest of their days in relative comfort.
To the winner the spoils and to the loser….erm….the spoils. Such is the world of the senior banking executive.