UK bank reporting mostly fails the Fink test - FutureValue
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UK bank reporting mostly fails the Fink test
12/04/2017
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In his 2016 ‘Annual Letter to CEOs’ Larry Fink, Chairman and Chief Executive of Blackrock, asked every CEO to “lay out for shareholders each year a strategic framework for long-term value creation” and so provide evidence of their future growth plans. In reviewing UK banks’ efforts presented in their 2016 Strategic Reports Mr Fink and his colleagues will be mostly disappointed. With the singular and exemplary exception of Lloyds Banking Group the 2016 reporting of the other four established FTSE100 UK banks is a largely lacklustre affair.  Investors, Blackrock etc., looking to use these banks’ Strategic Reports to help them make judgements about respective long-term potential will struggle. One bank makes it look easy but it is a different matter for the other four.

Barclays’ presentation of strategy and strategic management is formulaic and superficial. Its 2016 Strategic Report focuses on the short-term and more operational dimension as it concentrates on restructuring and on its transformation into two divisions, one ring-fenced and the other not. Its oft mentioned ‘Shared Growth Ambition’ is a catchy turn of phrase but goes largely unexplained throughout.

HSBC sets out to publish one of the most concise of Strategic Reports this year – quite a challenge for a company with a history of exceedingly long Annual Reports. The shorter a Strategic Report is, the more it needs to be crystal clear in constructing a strategy framework to signpost its future potential. HSBC has evidently failed to recognise this imperative, for its fragmentary efforts here raise unbecoming questions about the bank’s strategic literacy.

Royal Bank of Scotland takes the opposite tack, publishing a Strategic Report that is 50% longer this year on the strength of presenting a more integrated report. But, the reality of RBS’s effort is a narrative that pays only lip service to integrated reporting, with sparse random inclusion of social and environmental content. The absence of any persuasive strategy framework makes access to and assimilation of the extensive content challenging.

Standard Chartered is the fourth of the FTSE100 banks. Sometimes when a company is recovering from a period of adverse performance and below-par results its executives find it difficult to burnish their strategy credentials. Standard Chartered is a case in point. The bank is indeed recovering from recent challenging times and its 2016 Strategic Report displays signs of poor strategic thinking and a lack of clear strategic direction.

The notable exception to this indifferent reporting is Lloyds Banking Group. Lloyds publishes one of the more concise yet one of the very best of all FTSE100 Strategic Reports. The bank has patently put significant effort here into articulating the clarity of its strategic thinking and strategic management in this positive, forward-looking narrative. This is no flash in the pan, more the consistent output of seven years of assiduous effort.

So, when it comes to the Larry Fink test, only one of the UK’s major banks passes muster, Lloyds Banking Group, and then with some élan. One would have to conclude that the CEO’s of the other four banks did not read Mr Fink’s 2016 letter, or were unable to act on it confidently. The only thing that is exceptional about the Blackrock 2016 letter to CEOs is that it has taken so long for a leading institutional investor to ask unequivocally for evidence of long-term value creation. In his more recent 2017 letter Mr Fink confirms Blackrock will be actively looking for details of those strategy frameworks. It is good to see solid evidence of stewardship in action, but why did it take so long and just how patient will Blackrock be if they don’t find what they are looking for?