Convincing others to relocate to Scotland was the issue facing a secret meeting of the country’s top financiers, but they ended up talking about how sending jobs overseas was a good thing for the economy and for them. Ian Fraser explains
AS he strode in through the classical portico of Dover House, the Scotland Office’s London home, Tony Wyatt of Abbey National had quite a lot preying on his mind.
Abbey’s 54-year-old Canadian-born customer operations director was visiting Dover House in Whitehall in January to take part in a high-level round-table discussion about the future of financial services hosted by the economic quango Scottish Development International (SDI).
Having only been in the job for four months, Wyatt was still relatively new to the territory. His interlocutors — Susan Rice, chief executive of Lloyds TSB Scotland; David Thorburn, chief operating officer of Clydesdale Bank; Shane O’Riordain, head of group communications at HBOS; Nigel Hayward, chief technology officer at JP Morgan; and Brian Caplen, editor of The Banker — had a longer-term understanding of the Scottish financial services arena.
There were also a couple of civil servants present — Ernie McEwan and David Smith — both representing SDI, the Scottish Enterprise offshoot which looks after promoting Scotland overseas.
But in his short tenure at the mortgage bank, Wyatt had already achieved a lot. He had axed 900 Scottish Provident staff on 14 January, and it now seems that fewer than 90 have taken up the opportunity of transferring to the bank’s Glasgow offices in St Vincent Street.
This, according to one insider, is “largely because of the shoddy way in which we were treated by Abbey”.
And on 22 January, one day before the round-table discussion in Dover House, Wyatt had confirmed something that had been widely speculated upon in the Scottish press – that Abbey was closing its Glasgow-based Abbey National Asset Managers operation with the loss of 173 jobs.
This announcement had caused a deal of breast-beating and gnashing of teeth in Scottish financial circles, as it seriously undermined Glasgow’s reputation as a base for high-value financial services. It left Britannic Asset Management and Glasgow Investment Managers as the only surviving fund managers in Glasgow.
But in the elegant surrounds of Dover House — an ostentatious neo-classical edifice originally built as the private residence of Sir Matthew Featherstonehaugh, Bart, and once the home the eccentric but gifted Lady Caroline Lamb, mistress of Lord Byron — Wyatt was showing no sign of contrition.
During the session he complained about the inflexibility and “innate conservatism” of the bank’s 3,000-strong Scottish workforce. He seemed almost to hint that this smacked of ingratitude, given that his firm had made a “very public commitment” to retaining a major operational base in Glasgow.
The session — evidently intended to enable participants to bare their souls about the state and prospects for financial services in Scotland, and the merits or otherwise of employing thousands of people here — was held under “the Chatham House Rule“. That means that there was supposed to be no public reference to who said what on the day.
One objective was to assess how best overseas and London-based financial players can be persuaded to relocate to Scotland or set up back offices here.
However, following the leaking of a transcript of these discussions, which also included Susan Rice’s surprising belief that “Offshoring could be the best thing that ever happened to financial services in Scotland”, the need for confidentiality was obviated and the session has, in some senses, backfired.
Following Wyatt’s complaint, SDI’s David Smith insisted that Scottish workers are learning how to become more flexible. He said the shutdown of large swathes of Silicon Glen, the country’s electronics manufacturing sector, in recent years has had the “silver lining” of persuading Scottish workers of the need to be flexible.
“We’ve seen manufacturing and assembly jobs go offshore… and I think that has actually been quite helpful for Scotland, in overall terms, because it’s created a whole new generation of people who are now open and adaptable to change,” said Smith.
“It’s a tremendously important part of our strategy that we address the point of conservatism… and adapt and embrace change because it’s hugely important to help the Scottish business community to even further globalise their operations.”
JP Morgan’s Hayward had more awareness of the sensitivities at play here than his counterpart at Abbey. He said: “Change, depending on the scale of it, is traumatic… A lot of companies in Scotland have a huge amount of heritage, which is something to be very very proud of. There’s a tradition and prudence, but sometimes strengths can become weaknesses, meaning that you’re not as nimble of foot, as flexible or as confident as you want to be.”
Hayward believes the 750 people employed by JP Morgan in Scotland are flexible and adaptable because they have had the need to be drilled into them right from the start. “We were able to get [them] into the mindset of expecting to do something different every 12 months or every 18 months,” he said.
During the roundtable discussion Hayward warned, however, that many jobs at JP Morgan’s Bournemouth and Scottish facilities are likely to be “offshored”.
But a spokesman for the company later said that new roles would constantly be found for those whose work is moved offshore and that the total numbers employed in Scotland are likely to rise above the current 750 level.
Hayward explained: “The threat from offshoring [means] you have to find ways of upgrading the value proposition of what Scotland has to offer. We’ve put quite a bit of thought into that on our part, so you can have an offshore capability without having to shut down. And I think it’s, as Tony [Wyatt] says, how do you continually evolve, continually change and have that mindset to be able to do that?
“We’re offshoring stuff that we’ve done in Glasgow, and the Glasgow people are running it — they’re working with the vendors. This means they’re increasing their capabilities, so they’ve moved on from building a simple assistance to now being able to build and integrate electronic trading systems, which two years ago we’d only do in London.”
Wyatt, an old hand at offshoring, added: “Offshoring is a threat to individuals — they’re affected so they see it as a threat. It certainly shouldn’t be seen as a threat to an organisation. To coin Clinton’s phrase, it’s the economics. Sometimes those economics are quite hard, but it’s not new.
“You can drive quality up; you can change the nature of the job, as Nigel says. The nature of the job changes and suddenly you realise the whole thing is moving onto a different plane.”
But O’Riordain took a different stance, reiterating HBOS’s belief that offshoring is not the way forward.
“We think there is a trade-off here between cutting costs in the short term and customer service in the medium to long-term,” he said. “At the moment we’re worrying about moving something we’re not particularly good at in the UK, overseas. We worry about how we can manage it when it is operated remotely. This is an experiment we will leave to others.”
Thorburn said he believes too much time in the debate was being devoted to offshoring. “It’s not really what’s going to make the difference for any particular institution,” he said.
The discussion moved on to the issue of whether or not Scotland is a good place to carry out financial services — and the country’s acknowledged skills in innovation and the qualities of its people were highlighted by several participants.
Susan Rice said: “Scotland has been a place of innovation in financial services from the first savings bank, our antecedents at Lloyds TSB, to the fellow who founded the Bank of England, who was a Scot, so there is a reputation for probity. You’ve got a lot of the infrastructural elements. And at the end of the day, it’s a tremendous place to live and work.”
O’Riordain was fulsome in his praise of a rival bank: “The biggest single demonstration of the strength and depth of Scottish financial services … is the way in which RBS took over NatWest and did an outstanding job on that particular acquisition ….
“The reality is that two of the biggest banks in Europe are headquartered in Scotland — HBOS and RBS. Many of the innovators in financial services are from Scotland.” He singled out Intelligent Finance, e-sure and Direct Line.
Several participants said they believe that being one step removed from the “fashionable thinking” and “trader mentality” of London was a big advantage, while others suggested the cost advantages of not being in London (including lower rent and salaries) were a bigger attraction.
Thorburn said: “If you’ve got London at the centre, it tends to breed convergent thinking. If you’re not in the centre, you think outside the box and you’re much more innovative because you need to be, because you don’t have the advantage of being in the club.”
Rice backed this up: “When there is a big fad — of investing in Latin American property, or whatever — the Scottish banks have actually been able to say ‘we don’t have to go with the crowd because we’re a little bit separate’.”
It also emerged that HBOS now has a deliberate strategy of employing as few people as possible in the south of England because it’s too expensive and staff turnover is high. O’Riordain said: “When we built Intelligent Finance we went from zero people to 2,000 in three years. There’s no way we could have done that in the south of England.”
Nevertheless, there was agreement that some parts of Scotland — notably Edinburgh — had become hotspots and were suffering from a tight labour market.
O’Riordain said: “Edinburgh has been phenomenally successful but there are signs that the market is tight, so how can we continue to employ people and pay them a good rate and get people in a market that is getting tighter and tighter all the time?”
Rice suggested that firms should think about branching out into places with more availability of talent, such as Dundee. “If it’s a tight labour market, the answer is to spread out. I don’t think there has to be a tight labour market in Scotland – it’s just that the companies have chosen to locate next to each other.”
Hayward warned that Dublin had “imploded” as a financial services centre in the late 1990s “because it priced itself out of the market”. He said if salary expectations rose 20-30% in Scotland, “the economics would not work”.
Competition for customers is also fiercer than in other parts of the UK, according to Thorburn. “That keeps you on your toes, it gives you ideas, sharpening you up in a number of different respects. Then you can take those skills and that learning and apply them elsewhere in the UK.”
Inevitably the discussion got round to the media and the way it reports all these developments. O’Riordain said: “It’s difficult when you have to make changes like [Wyatt] is trying to do. Invariably the press, wherever they are, always pick up on the bad news. We’ve created 3,000 new jobs in Scotland since we merged. That doesn’t appear in the press very often.”
Rice said: “The Scottish press is different from the UK and national press. They take a very close interest in all the affairs of Scotland and they actually play off against each other, so when a company makes a decision, one paper gets the one view and the other has another view. It’s maybe magnified in a country such as Scotland.
“What is clear is [that the press] understands this is actually a very important industry in Scotland.”
But Wyatt strongly disagreed with this: “I never feel like that,” he said.
Another topic under discussion was Scotland’s image overseas — which several speakers warned could be a turn off for some overseas investors.
Rice told SDI’s Smith that his organisation must try harder to counter the conventional image in the US and elsewhere that Scotland is a land of castles, tartan and whisky. Smith replied that concerted action is planned: “Over the course of this year, we’re going to step up our efforts to inform even more of the international community about the strengths that we have in financial services in Scotland.”
Talking of plans to take the Clydesdale Bank brand into the southeast of England, Thorburn had been surprised at the positive impressions “Scottishness” can engender. He said: “The Scottish brand does travel well… as you open up in new communities and start to engage, it’s remarkable how well the Scottish brand travels. That’s certainly one thing that’s at the forefront of our thinking.”
Rice said the constant self-criticism in Scotland — for example “education isn’t what it used to be” — could in fact have a positive effect. “Maybe it’s that self-criticism that actually keeps it on the edge and keeps it as good as it is?” she said.
“But I think we could use a little more of people like yourselves from the outside coming in and saying ‘do you realise how good you are?’ I wonder if we need a little bit more confidence-building in Scotland in that sense.”
So what of the future? Most of the participants said they believe that, for Scotland to have a sustainable future as a financial services base, it would have to be open to change and continually push up the value of the jobs carried out here.
Hayward said: “You’ve got to continually re-evaluate, push up that value proposition and understand what you’re competing against.”
This article was published in the Sunday Herald on 25 April 2004