Member Article

“Economic Violence” caused RBS failure study suggests

Competitive and aggressive management techniques by Royal Bank of Scotland senior executives were the ultimate cause of the destruction of the company, according to a study by management experts.

Academics from the University of Leicester and Newcastle University Business school used the term “economic violence” to describe the leadership style within the firm which was founded on threatening employees with redundancy and forcing them to meet aggressive sales targets.

These tactics saw individuals become embroiled with a battle for status against leaders of rival financial institutions, which distracted them from serious issues within their own bank.

The research, which was published in the journal Organization Studies provides an alternative explanation for the bank’s’ failure, based on management and social science, rather than just economics.

Commenting on the figures, sarah Robinson, senior lecturer in management and organisation studies at the University of Leicester School of Management said: “A management culture of overt economic violence within RBS’ Scottish headquarters translated into the cultural capital that management would use in their battles for power in the City of London.

“Competition among banking leaders for legitimacy within the field triggered irrational behaviour, which contributed to the financial crisis.”

Dr Robinson and co-author, Ron Kerr, Lecturer in Organisational Studies at Newcastle University Business School, begin by showing how the traditional old guard of Scottish banking, educated at elite public schools and Oxbridge, were supplanted as the top executives by ‘modernisers’ from more humble backgrounds.

Ron Kerr said: “Previous executives at RBS had retained power by relying on ‘symbolic violence’. The expression, coined by the French sociologist Pierre Bourdieu, means the creation by leaders of the belief among those they lead, that the subordinate position is just and natural.

“However, within RBS the modernisers instead wielded what the authors call ‘economic violence’ to acquire and retain their leading role – a variation on Bourdieu’s “symbolic violence”. This meant a form of leadership that operated through the threat of destroying people’s economic power by laying them off or forcing them to meet aggressive sales targets.”

Their research also indicated that RBS executives’ reputation counted as ‘capital’ in the City of London, and was a deciding factor when the firm secured City backing for the takeover of Dutch Bank ABN Amro.

During this period RBS ignored the problems of “toxic assets” and “bad debts”, as they were distracted by attempts to legitimise themselves within the English elite banking leaders - leading to their ultimate failure.

This was posted in Bdaily's Members' News section by Ruth Mitchell .