Barclays Report Cites Failings Leading to Scandal

LONDON�Excessive pay, insufficient boardroom oversight and the lack of a cohesive corporate culture at Barclays PLC laid the groundwork for the large British bank to stumble into a series of scandals in recent years, according to a report published Wednesday by a senior British investment banker.

Barclays last year commissioned London investment-banking executive Anthony Salz to conduct a review of what went wrong at the venerable British institution, after its involvement in attempted interest-rate rigging prompted the resignations of Barclays's senior management.

Enlarge Image

Close Reuters

The logo of Barclays bank is seen at its office in the Canary Wharf business district of London on April 1.

Further Reading

• Blog: Probe Causes Discomfort at Barclays
• The Salz Review
• Missteps Doomed Barclays's Leaders (7/15/2012)
• Live: The Libor Investigation

Mr. Salz's 236-page report, which was produced with the help of outside consulting and law firms at a cost of at least �14.8 million ($22.4 million), didn't uncover new problems at Barclays. And most of its recommendations�such as instilling a stronger culture, reining in compensation and adopting a less-aggressive posture with regulators�already are focal points for Barclays's new management team, led by Chief Executive Antony Jenkins and Chairman David Walker.

Still, Mr. Salz's report paints a harsh portrait of Barclays over the past decade, during which the bank emerged as one of the world's largest financial institutions.

"It was a lack of self-awareness that contributed to the deeply disappointing chapter in Barclays long and proud story," the report concludes. "If short-term financial returns and employee rewards are ever too dominant in the bank's culture, problems will result."

The result of the bank's breakneck pace of growth, Mr. Salz wrote, "was that Barclays became complex to manage. Despite some attempts to establish group-wide values, the culture that emerged tended to favor transactions over relationships, the short term over sustainability, and financial over other business purposes."

Among those singled out for criticism were former CEOs John Varley, who stepped down in 2010, and Bob Diamond, who resigned last summer after the bank admitted trying to rig the London interbank offered rate. Since then, regulators and some Barclays executives have complained that Mr. Diamond, an American who built Barclays's investment-banking arm largely from scratch, fostered an excessive win-at-all-costs culture and that he often pushed the envelope in dealings with British regulators.

Through a spokesman, Mr. Diamond declined to comment. Mr. Varley couldn't be reached.

The review also questioned the way that Barclays paid its staff, arguing that the bank should find ways, apart from money, to motivate its employees. Mr. Salz found that Barclays's investment-banking arm between 2002 and 2009 appeared to be "overly generous" in paying out an average of �170 million a year in long-term bonuses to a changing group of around 60 people. It said the bank's long-term incentive programs "suffered a number of design issues," including links to divisional performance that don't necessarily align the interests of employees with those of shareholders.

Mr. Salz said the bank has made some changes to its long-term incentive plans this year but that it remains concerned about the complexity of the programs.

"The report makes for uncomfortable reading in parts," Mr. Walker said Wednesday. "That is bound to be the case when one asks for an independent examination of this kind, and we must learn from the findings. Our initial review of the report's recommendations is that they are substantially aligned with work already progressing" at the bank.

Write to David Enrich at david.enrich@wsj.com, Margot Patrick at margot.patrick@dowjones.com and Max Colchester at max.colchester@wsj.com