Talent for being in the Right Place at the Right Time

During the past week the much derided Bob Diamond, CEO of Barclays Bank, has graced the world with both a lecture and an interview with the BBC. Asked about his remuneration, modesty forbad him to admit precise figures, though figures are available. £5.4 million is the number widely quoted for the last year. That’s down from the £15.2m reported in 2007 along with the then accumulated total of £80m (see http://www.gordonpearson.co.uk/11/what-are-they-laughing-about/). Anyway, it’s nothing to do with Bob – his remuneration is decided by a board committee on behalf of shareholders!

Perhaps he is right: precise figures are unimportant. What matters is simply that the mass of people regard such remuneration as an obscenity even in the good times, let alone when so many are finding it impossible to make ends meet. Peter Drucker regarded top remuneration being 20 times the lowest, as the most that could be got away with, if the ‘hatred’, ‘anger’ and ‘contempt’ of ordinary people was to be avoided. Diamond pays himself 600 or 700 times the lowest paid, and appears to completely overlook the fact that the problems confronting the least well off, are in large part, the direct result of the gross incompetence, if not dishonesty, of bankers not unlike himself. Hatred, anger and contempt gets nowhere near it.

So why are such huge sums paid? Diamond did, of course, remind us that it is a global market, and voiced the old mantra that if talent was not rewarded “competitively”, it would go elsewhere. That sounds remarkably like blackmail. Presumably Diamond was including himself as one of the mobile talented. However, if there was one thing that his rare public exposure did make clear, it was that you can be the CEO of a major bank with a relatively modest intellect. And given Diamond’s personal background in investment banking, the same must go for that too. So what is this precious talent that might desert us if we reduce its rewards?

It is the traders who make the money, and occasionally lose it, in such prodigious amounts. And the difference between winning and losing is hardly a matter of talent. If it was, the losers would be quickly unemployed. Moreover, more than three quarters of trades are now automated, without human intervention, talented or otherwise, and that proportion is continuing to increase. Explanations of talent are usually couched in terms which, it is no doubt hoped, would not be generally understood. It is argued that traders are dealing with “products” which are so sophisticated few people can really understand them. But the fact is, as discussed in last week’s posting, those “products” which are now perfectly legal, are specifically invented to be impossible to understand. That is their whole point. There must be no available logical explanation of the fundamental value of such “products”, only a view to be taken of their price in the very near future as compared to their price now. They are like so many jars of marmalade with some containing arsenic, but with their ingredients not listed. Talent won’t identify the bad bets.

The reality is that people like Diamond happen to have been in the right place at the right time. The right place was in a financial institution such as an investment bank or one of the newly legalised capital funds. And the right time was when financial markets were progressively deregulating after the 1986 big bang and when derivative “products” were made legal. Any other place, any other time, and Diamond would be no better off than the rest of us and probably worse than many. He knows that as well as anyone.

So why does he continue to defend the indefensible? Well maybe that goes back to his modest intellect. Maybe he just doesn’t see the writing on the wall. Or possibly, he has been paid so much for so long he has actually come to believe he’s worth it. Or maybe he takes it simply because he can, while he can.

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