School Papers

Commercial four core businesses, namely Personal & Corporate

 

Commercial Analysis of
Barclays plc.

 

Barclays plc. is a British
multinational and financial services company. John Freame, an English banker
and Thomas Gould established the company in 1690. The name ‘Barclays’ came from
James Barclay, a partner in 1728. The headquarter of Barclays plc. is currently
located in Canary Wharf, London. Barclays has made corporate acquisitions
including North American operations of Leman Brothers in 2008.

 

Company Profile

As a multinational company,
Barclays has operations in over 50 countries, serving 48 million customers
throughout Europe, Asia, Africa, Middle East and America. Barclays has 119,300
full-time employees in 2017 according to data provided by Financial Times. The
great number of employees provides strong supports for customers across the
globe. The objective of Barclays is to help people achieve their ambitions, not
only in the UK but all around the world. Barclays operates two businesses,
Barclays UK and Barclays International. Moreover, Barclays provides banking and
financial services for different types of customers, which are their four core
businesses, namely Personal
& Corporate which includes saving, mortgages, wealth management and
insurance, Barclaycard which are credit cards, Investment Banking and
Africa (Barclays, 2017).

 

The main competitors of Barclays would be HSBC and Royal Bank
of Scotland. HSBC is a rather strong competitor in developing business in Asia
as HSBC is a bank set up in Hong Kong and hence they have experience in Asia
business. In 2007, Barclays was in an acquisition battle, bidding ABN AMRO against
Royal Bank of Scotland. However, the strong advertising and marketing of
Barclays boosted their brand image and this makes Barclays distinctive.

 

According to S&P Global Market
Intelligence’s report of 2017, Barclays ranked 16th in the latest
global ranking of top 1000 banks, with its total assets of USD $1,495.84 billion. Moreover, it is the second
largest bank in the UK with only HSBC ranking above. Also, in the league table
of Financial Times in 2017, Barclays ranked 7th in terms of fees
collected.

 

SWOT Analysis

 

Strength

Barclays is a well-known brand
around the world. The 325 years of banking experience and history successfully
makes Barclays a trustworthy company. With the sponsorship for English Premier
league, Barclays is a name the most population in the world come across every day.

Beside a strong brand image, with the widespread global presence, Barclays has
the ability to spread risks and to develop gradually. Also, the international
network brings Barclays good visibility. It is undoubtedly that Barclays can
develop well in scale and reputation with its history and brand image.

 

Weakness

Barclays has a problem of issuing
large amount of bonus to the Directors (The Guardian, 2016). This would lead to
the problem of damaging its reputation and losing trust from the shareholders.

Barclays is also facing the same problem as most of the banks which is economic
crisis. Banks are essentially affected in economic crisis both in the UK and
from the globe. A good example would be the bank crisis of Northern Rock.  In 2006, Barclays was trying to enter the
Asian market however the bid was backed by ABN Amro (Finaicial Times, 2007)

 

Opportunities

Barclays’
international network is one of its valuable assets. However, Barclays can
still widen this network. According to Bloomberg’s top 20 emerging countries in
the world of 2013, the top 3 countries are China, South Korea and Thailand.

This shows that Asia is an area with great development potential as there must
be rising demand in both retail and wholesale banking. Barclays could expand
their business in Asia.

Moreover, as Barclays is the
sponsor of Premier League, a popular event among the youth, after the financial
crisis in the past years, there is an increase in youth’s financial knowledge.

This provides an opportunity for Barclays to expand the youth’s market.

In addition, online banking is a
new era. Barclays can develop more services online.

 

Threats

One of the significant threats would be highly competitive
environment from the industries. The competition may reduce Barclays market
share. On the other hand, Brexit would be a great threat for Barclays, or every
British company recently. It is expected Barclays will be negatively affected.

The truth is from June, 2016 to July, 2016, which is the period of voting and
deciding Brexit, the stock price of Barclays fell for around 20% (Bloomberg,
2017).  If the EU financial regulations
are not beneficial to the bank industry, Barclays may experience further
difficulties. Expanding in Asia can be a threat at the same time as investors
may not tend to support Barclays while there are other banks in Asia.

Just like the other banks, economic stability is always a
potential threat. Unlike other industries, banks will experience significant
effect while economic downturns.

 

 

 

 

 

 

 

 

Accountability

 

Accountability means that managers
are responsible for carrying out duties and tasks. They must report and answer
for his actions and decisions(OECD,2002). According to Sanderson(2009), there
is a great difference between accountability and responsibility. Accountability refers to the person or organisation should
explain, justify and take full responsibility for events, outcomes or decisions(Cooper,2007).

This cannot be shared. Responsibility refers to being the owner of the task or
event but not the outcome.

 

Accountability and
Transparency

Speaking of
accountability, transparency of corporate activities and decisions are closely
related. According to Luo(2005), accountability includes two principals, namely
‘financial reporting accountability’ and ‘strategic decision’. Strategic
decision refers to decisions that will bring significant effects linked to
shareholders. Shareholders and stakeholders are probably the ones who are
interested in both of the principals the most. Therefore, transmitting quick
and significant information with high transparency is essential for a bank. Transparency
also focuses on disclosing and explaining the decisions to key stakeholders
including employees(Shearer,2002). Furthermore, banks as multinational
companies, having shareholders around the world, must pay more attention on
transparency and accountability. The demanding global shareholders are seeking
for greater information of companies they are investing on to ensure they can
get profit from their investments. Good accountability should be maintained by
companies internally even though there are external regulations.

 

Accountability is not normally
wanted.

There are limits and disadvantages
for accountability and Messner(2009) said that it was undesirable. Butler(2005)
even described the limits as ‘ethical violence’ and this refers to something
which is not easy to explain or justify. In other words, accountable person may
not able to quantify their actions. Moreover, the needs and expectations of
different level of people are different so the accountable person maybe find it
hard to satisfy various parties.

 

Accountability in
Barclays plc.

Barclays needs high level of
accountability. Firstly, and most importantly, Barclays is a bank. Banks are
monitored by various stakeholders such as government, shareholders and
multi-national organisations. Secondly, as Barclays has a wide international
network, it is essential to have high corporate accountability than other
company (Shearer. 2002). Multinational enterprise like Barclays needs to plan
and control actions within the network.

 

Independent accountability of
foreign divisions can enhance the reports and communication with the group. The
group can measure and review the performance effectively and detecting
problems. Ultimately, this will benefit the long-term development.

 

Having high level of accountability
can benefit Barclays in economic aspect. Once a company is doing well with
accountability hence governance, it is possible for it to minimize additional
costs such as agency cost. This is especially beneficial to multinational
companies as strategic decisions can be transmitted efficiently.

 

 

 

 

 

 

 

 

 

 

Control issue in
Barclays plc.

 

The issue

 

BBC and Reuters(2014) reported, Daniel
James Plunkett is a former director on the Precious Metals desk of Barclays. ON
28th June 2012, his duty was about pricing and managing Barclays’
risk on gold market. He created fake orders as to push down the price of gold
to less than $1,588.96. As a result, Barclays was not obligated to pay
$3.9million payment to its customers but got a profit of $1.75million. Plunkett
even boosted his own trading book by 1.75million. Customers became aware that
the price of gold had been fixed below the Barrier and requested an explanation
from Barclays. Plunkett failed to disclose his fake orders and misled Barclays
and the Financial Conduct Authority by providing untruthful account of events. According
to the FCA, Plunkett failed to demonstrate the degree of honesty and integrity
required by the regulatory system as he placed fake orders.

 

Consequences

 

Both Plunkett and Barclays were
fined in this incident.

 

Barclays violated Principle 3 and 8
of the FCA’s Principles for Business, in relation to the Gold Fixing. Barclays’
fine was £37,190,800 but they were qualified for a 30% discount as they agreed to
settle the fine at an early stage. Beside the fine, Barclays faced a more
serious consequence which is losing trust from the customers. Customers may lose
confidence on Barclays’ services and hence the profit will be reduced. Also,
the reputation of Barclays was damaged.

 

Plunkett’s inappropriate conduct is
serious. He put his interest over customers and this shows the agency problem.

His action would affect the Gold Fixing and the UK and international financial
and gold markets. His fine was £136,600. Also, the FCA prohibited Plunkett from
performing function in relation to any regulated activities, no matter by
authorised person or professional firm.

 

Potential Causes

 

Plunkett’s inappropriate actions are related to the internal
control of Barclays.

 

Firstly, and the most relevant reason is the conflict of
interest between Plunkett or even Barclays and their customers. Plunkett wanted
to boost his sales book and hence made the fake transactions.

 

Secondly, the lack of sense of belongings of Barclays from
Plunkett. This may not be a significant reason but the problem would be avoided
if Plunkett had a strong sense of belongings. He would know his identity as a
trader representing Barclays which had accountability on every transaction.

 

Thirdly, the imperfect monitoring on daily operation or
transaction on the Gold fixing or other markets. In stock trading, every
transaction is recorded with customers’ phone call. Managers would monitor the
recording as to ensure traders follow the rules and procedures. It is doubtful
that Plunkett did not follow the rules and procedures. This exposes the loophole
of the internal control system.

 

 

 

 

 

 

Preventing risk/
Improving internal control

 

Identifying risk

 

This can be the first step in
internal control as to distinguish and control various types of risk that
Barclays may face. Risk assessment could be carried out in order to identify
risks which may occur in the process of sales of different products such as
stocks and gold. For example, there may be errors in taking order from
customers or similar to the Plunkett case which is staff putting their own
interests over customers. Risk assessment can normally include a few procedures
which are risk identification, risk assessing, risk controlling and review of
controls.

 

Agency problem

Agency theory is based on conflict
between different counterparties in a contractual relationship. In Barclays’
situation, there are two relationships, Barclays and Plunkett; Plunkett and the
customers. Conflict of interests arise because the incentives of agents are not
aligned with those of the principals. Plunkett had the incentives for his
misconduct actions which is boosting his trading book. In other words, he was
not behaving as he should. In this case, as to prevent similar issue from
happening again, Barclays can draw up a contract in which agents share in the
consequences of their action. The contract may also include increment of
traders’ incentives which is commission or fixed salary. This could reduce the
unwanted agency cost in this case which is millions of dollars.

 

 

 

 

 

 

Setting adequate
policies or procedures

 

As mentioned, the Plunkett incident
revealed that Barclays failed to implement or create relevant policies and
procedures. However, it is not an acceptable excuse for the misconduct as
having rules and procedures for trading is essential in the industry. Barclays
should review their policies or procedures as to perfect the trading system.

Strengthen the security and monitoring while trading is a must as to protect
both the company itself and their customers.

 

Training of staff

 

It is important to ensure that
similar incident will not happen again. Barclays have the full responsibility
to provide training for staff especially managers. Based on the Plunkett case,
Barclays should increase the employees’ knowledge on the procedures of trading
and rules to follow as to provide fair and appropriate service for customers.

Also, Barclays should clearly state the consequences of violating rules or
having misconduct actions. Employees will then understand their accountability
to their own actions and behaviour.

In detail, Barclays can organise
training session or seminars for employees. The content may include inviting
experts from the industry for example staff from the FCA. The ultimate
objective of the training is to ensure Precious Metal Desk staff following the
procedures and rules set by Barclays.

 

Monitoring

 

Barclays failed to create systems
and reports for monitoring traders’ operation in connection with the Gold
Fixing according to the FCA. Every transaction should be recorded. Telephone
transaction records should be checked randomly. This will need the help of
division of power as to make sure problem of covering errors or faults.

 

External monitoring

 

An independent team from the
external parties should be formed as to monitor Barclays’ operation. This can
prevent most of the fraud or internal control issue from happening for example
money laundering. This shares a similar concept with external auditing. The
team should constantly update and evaluate the company’s internal control.  However, a possible disadvantage is the
economic cost of forming the team is relatively high. Barclays should balance
the cost and needs.

 

Evaluation on
accountability and internal control of Barclays plc.

 

Accountability is an obligation of
a company to account for its decisions and activities and disclosing results
with high transparency.

 

Barclays plc. is not fully
accountable for its activities. Barclays as a multinational bank should be
accountable and responsible to stakeholders, especially shareholders from
around the world. Most importantly, not to threaten their interests. Barclays
hopes to help people achieve their ambitions. However, the first step to this is
to gain trust and respect from people. In order to do so, high level of
accountability and transparency are needed.

Plunkett’s misconduct action,
making fake orders of gold and pushing down the gold price to boost his trading
books is a serious issue to both Barclays, customers and financial market.

McDermott, director of FCA pointed out that the lack of controls of firms and
traders’ disregard for customers’ interests will damage the financial services
industry’s reputation. Customers’ trust was also reduced from this issue as
customers want their investments to be safe and protected. Ultimately,
Plunkett’s actions would hinder Barclays’ economic development.

 

It is possible that the Barclays’
‘gold price fixing issue’ was just a personal misbehaviour of Plunkett.

However, Barclays should still bear some of the responsibilities because of
their loopholes of internal controls.

 

Barclays must learn the lesson and
improve their internal control by different measures including perfecting the
risk assessment process, providing training for staff, handling agency problem
and forming external monitoring team. However, it is believed that this is not
a single case in the industry. It is not possible to eliminate the issue by
only improving Barclays’ internal control.

 

Jenkins, Chief Executive of
Barclays was trying to restore the bank’s reputation. However it was not easy
as there was a scandal of rigging LIBOR. Reputation is a precious asset of
businesses, especially banks.

 

After all, the industry, regulators
and government should also work together to create a business environment with
fewer frauds and scandals.  Ultimately
the macro economy would benefit from this.

 

 

 

 

 

 

 

 

 

 

 

 

 

References

 

Barclays(2017)
About Us. Available at: https://www.home.barclays/ (Accessed: 15 January 2018)

 

BBC News(2014) Barclays Bank fined £26m for gold price
failings. Available at: http://www.bbc.co.uk/news/business-27536127 (Assessed:
18 January 2018)

 

Bloomberg(2018)
There’s a lot you don’t know about Versailles. Available at:
https://www.bloomberg.com/news/photo-essays/2018-01-17/there-s-a-lot-you-don-t-know-about-versailles-in-photos
(Assessed: 18 January 2018)

 

Bloomberg(2018)
Quote of Barclays plc. Available at: https://www.bloomberg.com/quote/BARC:LN
(Assessed: 14 January 2018)

 

Butler, J. (2005) Giving an account of oneself

 

Cooper and Owen(2007) Corporate social
reporting and stakeholder accountability: The missing link

 

Financial Times(2017) League Tables. Available at:
https://markets.ft.com/data/league-tables/tables-and-trends (Assessed: 14
January 2018)

 

FInanical Times(2007) ABN Amro backs 66bn bid from Barclays.

Available at: https://www.ft.com/content/8c195eaa-f100-11db-838b-000b5df10621
(Assessed: 15 January 2018)

 

Financial Times(2018) Profile of Barclays plc. Available at:
https://markets.ft.com/data/equities/tearsheet/profile?s=BARC:LSE (Assessed: 13
JAmuary 2018)

 

Financial Conduct Authority(2014) Final Notice for Daniel
James Plunkett. Available at: https://www.fca.org.uk/publication/final-notices/daniel-james-plunkett.pdf
(Assessed 15 January 2018)

 

Luo Y. (2005) Corporate governance and
accountability in multinational enterprises: concepts and agenda. Journal of
International Management

 

Messner M. (2009) The limits of
accountability. Accounting, Organizations and Society;34

 

New America(2008) The Effectiveness of Youth Financial
Education. Available at:
https://www.newamerica.org/asset-building/policy-papers/the-effectiveness-of-youth-financial-education/
(Assessed: 17 January 2018)

 

 

 

Organisation for
Economic Co-operation and Development (2002) Accountability (In management
theory) Available at: https://stats.oecd.org/glossary/detail.asp?ID=4757
(Assessed: 14 January 2018)

 

Retures(2014) Barclays slapped with 26 million pounds fine.

Available at:
https://uk.reuters.com/article/uk-barclays-regulations-gold/barclays-slapped-with-26-million-pounds-fine-over-gold-price-fix-idUKKBN0E30UV20140523
(Assessed: 18 January 2018)

 

Shearer, T. (2002) Ethics and
accountability: from the for-itself to the for-theother. Account. Organ. Soc.

27

 

S&P Global(2017)
The world’s largest 1000 banks. Available at:
http://www.snl.com/web/client?auth=inherit#news/article?id=40223698=A-40223698-11568
(Assessed: 14 January 2018)

 

Sanderson, R. (2009). Responsibility v
Accountability.Online Video. 15 December 2009. Available at:
https://www.youtube.com/watch?time_continue=62=NZJ3Nw60CKs (Assessed 18
January 2018)