Bradford & Bingley transformation & decline, 1995-2010

• Main Author: Hambach, Matthias
• Other Authors: Maltby, Josephine ; Linsley, Philip
• Published: University of York 2014
• Subjects: 658
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.647073

The recent financial and economic crisis, which affected many financial institutions in the UK, created the need to investigate and understand how the crisis affected these institutions. Consequently, numerous official reports and academic studies have been written, particularly on Northern Rock, examining the financial impact on, and business strategies of, these institutions. However, comparatively, there has been little empirical investigation into the board processes that contributed to the decisions made by the management of these affected institutions leading up to the crisis. Of particular interest to research are the demutualised building societies. They were unlike the large universal banks, who engaged heavily in investment banking and were trading on their own account; yet their organisational outcomes, in particular receipt of government support, were similar. This study focuses on the case of the former Bradford & Bingley Building Society (B&B), the last building society to demutualise, and investigates its transformation and decline over the period 1995 – 2010. The investigation adopts a novel approach by combining the Corporate Governance Life-Cycle with the Upper Echelons Perspective to examine structural and behavioural changes of the board and its governance functions, during the transition of Bradford & Bingley, from building society to bank and nationalised institution. Using a variety of sources, including interviews with directors, official documents, financial records, and newspaper articles, the transformation of B&B is examined through a historical lens. The thesis argues that life-cycle stages should not be seen as periods with well defined boundaries, but rather overlapping periods of varying length, where each period has distinct characteristics that distinguish it from another. Furthermore, the importance of each corporate governance function changes gradually over time within each stage. Moreover the interviews revealed that directors considered there to be a general hierarchy of governance functions, where determining strategy was considered to be their prime responsibility, contrary to what is suggested in agency theory. In addition, the context of Top Management Team (TMT) decision-making using the upper echelons perspective is analysed. The findings suggest that firm culture and wider economic environment are important factors impacting the constructs of the upper echelons perspective and hence decision-making. In particular, the corporate governance functions are central to describing the state of the firm. Also major external events, as well as management decision-making, influence the life-cycle progression of the firm. In summary, the study reflects different life-cycle stages, ownership patterns and regulatory environments in its exploration of board processes and transformation at Bradford & Bingley. This thesis thus contributes to the ongoing debate on the shifting UK corporate governance code, which recognises that appropriate board structures and non-executive director independence are not sufficient to have an effective board, but that board effectiveness depends on TMT behaviour. In this context, boardroom culture has emerged as the major determinant of the effectiveness of board processes.