Lloyds Banking Group

INTRODUCTION

Lloyds Banking Group plc is a leading financial services company. Based in UK it provides a wide range of banking and financial services to both personal and corporate customers. It was formed in January 2009 following the acquisition of HBOS (UK banking company). Since then it specialises in:

·      commercial and corporate banking;

·      retail;

·      life, pension and investment provisions

·      general insurance.

Lloyds Group also operates globally in over 30 countries providing international banking services. The services that corporation offers are delivered through a number of well recognised organisations among which are: Lloyds TSB, Scottish Widows, Bank of Scotland, Halifax, Clerical Medical and Cheltenham & Gloucester and other large branch networks of UK.

Lloyds Banking Group is quoted on the London Stock Exchange and York Stock Exchange. It is also recognised to be “one of the largest companies within the FTSE 100” (Lloyds Corporate Governance Report 2011)

INVESTIGATION & EVALUATION OF LLOYDS BANKING GROUP plc

(i)        key roles of corporation

It is a responsibility of the board of the corporation to achieve a long term success for the company as a whole by being the best bank for the customers and produce stable, sustainable and strong returns for shareholders. Although the directors of the board play an important role in making the decision with relation to how the corporation operates the two key roles in a life of Lloyds Banking Group are the Chairman and Group Chief Executive.

The overall responsibility of Sir Winfried Bischoff, the current Chairman of Lloyds Banking Group, is to be an effective leader of the Board of Directors (Chart 1). He ensures the Board concentrates its attention on the right matters. The chairman always reviews the content of the agendas which are finalised at Board Agenda Review meetings involving the Group Chief Executive, Chairman, Company Secretary, Deputy Chairman and Senior Independent Director. 

The Chairman along with Company Secretary makes sure the Directors receive up-to-date as well as relevant information and are informed of key developments and emerging issues between and during the formal meetings.

On regular basis Sir Winfried Bischoff also meets with Non-Executive Directors without the Executive Directors being present, in order to broaden the Board’s outlook and strengthen its collective judgement.

 In addition to those mentioned above, the key responsibilities of chairman also include advising to Chief Executive, facilitating over the meetings, formation of board committees, evaluation of the board effectiveness, monitoring and evaluating chief executive and representing shareholders to management and management to shareholders. 

The role of chairman is separate from that of the Group Chief Executive, whose responsibility is to manage and lead the business day to day. Taking over in March 2011, the new Group Chief Executive, António Horta-Osório, delegates responsibilities to the Executive Directors, his direct reports and other senior executives who collectively make up the Group Executive.

Generally the Group Chief Executive is known as a decision maker. He also communicates the annual reports of the corporation to the press and the outside world as well as to the employees and the board. Being a leader the chief executive advises the board of directors and also motivates employees to improve the productivity of the corporation.

It is essential that the relationship between both and chairman and CEO are based on mutual understanding of the roles they accomplish within the corporation, so that they can maintain comfortable and profitable culture within the Board.

(ii)      reporting to the shareholders and auditors

The board of Lloyds Banking Group recognises how it is important to develop and promote a mutual culture and understanding between the corporation and its shareholders. Therefore the company holds about 400 meetings every year. The majority of such meetings are conducted by Group Chief Executive and Chief Finance Director.

As a Chairman of Remuneration Committee, Anthony Watson meets the larger shareholders in order to discuss executive remuneration issues. Once the changes happen every shareholder is informed without a delay. If the meeting is required the board of directors assembles shareholders to discuss and find a solution to an arising issue.

The effectiveness of the control system within the corporation is reviewed regularly by the Board and the Audit Committee. The committee often receives reports of feedbacks from the corporation’s auditors and has a discussion with the auditors at least once a year, without executives being present, to ensure that there are no unresolved issues of concern. Any changes concerning the regulations or board operations are finalised in a report and sent away to the auditors for their acknowledgement.

   DESCRIPTION OF RESPONSIBILITIES 

The Board of Directors and Shareholders

One of the main duties of the Board of Directors is to establish and review system of internal control, the purpose of which is ensuring of effective and efficient operations, internal control, quality of internal and external reporting and also compliance with laws and regulations. The Directors of the Board are committed to maintain a “control-conscious culture” across all areas of corporation’s operation (Board of Directors, Annual Report 2011). The directors also communicate to all employees by publishing policies and procedures and providing regular management briefings.

The directors are responsible for preparing the Annual Report, the financial statements and the Directors’ remuneration report in accordance with applicable law and regulations.

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By the means of regular updates at the Board and Committee meetings the Board is advised of the views of major shareholders, who in their turn ensue the board of director properly manages the corporation and complies with all laws. The Board also receives reports every month on market and investor opinion and shareholder analysis.

Relations with Investors have a primal responsibility for managing day-to-day communications with shareholders. Advised by the Group, Chief Executive and Group Finance Director, the Board achieves this through a combination of briefings to shareholders and analysts as well as external visits and individual discussions with institutional shareholders.

The Company Secretary looks after communications and negotiations with private shareholders. And the annual general meeting delivers an opportunity for private shareholders to meet Directors and to hear more about the strategy of the corporation. Shareholders are encouraged to attend the annual general meeting and to raise any questions at the meeting or in advance.

For provision of good corporate governance and in accordance with provisions of the Code of Practice, Directors of the Board of Lloyds Banking Group retire voluntarily and submit themselves for re-election at the annual general meeting. Every shareholder receives a package prior attending such meetings where are set out the details of the directors who seek re-election. Once the shareholder is not satisfied with performance of one or another director he is allowed to seek replacement of that director before the re-election time. Being an owner of the shares any shareholder has a right to claim explanation from the board of directors at anytime.

The Board of Directors and Employees

Lloyds Banking Group provides employment practices and policies which recognise the diversity of the corporation’s workforce and ensure equality for all employees independently their disability, sex, age, race, religious belief or sexual orientation (discuss.bis.gov.uk).

In the UK for instance, Lloyds Banking Group collaborates with the major employer’s groups which campaign for equality of staff, including Employers’ Forum on Age, Employers’ Forum on Disability, Stonewall and the Race for Opportunity. The involvement with these organisations gives the corporation an opportunity to identify and implement best practice for the staff.

All employees of Lloyds Banking Group are always informed of the changes affecting them through such techniques as: briefings, team meetings, internal communications and surveys. Also campaigns that offer the acquisition of shares are available for most staff, with a purpose of encouraging their financial involvement in Lloyds Banking Group.

Lloyds Banking Group always provides employees with comprehensive data of the financial and economic issues affecting the Group. For this the corporation’s management established varies communication channels, among which is a face-to-face briefing campaign that allows Lloyds Banking Group to update the employees on the overall performance and other financial issues throughout the year.

The board of Directors and Suppliers

Lloyds Banking Group also has signed up to the ‘Prompt Payment Code’ (published by the Department for Business Innovation and Skills), with regard to the making of payments to suppliers.

One of the Corporation’s policy relates to agreement of payment terms with suppliers, which normally are settled within 30 days after the date of the invoice, except where other arrangements have been negotiated. It is the policy of the Company to stand by the agreed terms of payment so the suppliers perform according to the terms of the contract.

LEGAL STRUCTURE: LLOYDS BANKING GROUP VS NEW LOOK

Lloyds Banking Group is a public limited company which is listed on the stock exchange. Its shares are freely sold and traded to the public. Its corporate structure was adjusted in 2009 as a result of the acquisition of HBOS plc. Following this the HBOS plc holdings were transferred to Lloyds TSB Bank plc. Thus Lloyds TSB became an immediate parent of HBOS. Lloyds Banking Group continues directly own Lloyds TSB however as a result of this transaction it owns HBOS indirectly.

Such transfer followed a review by the head management of the structure of Lloyds Banking Group. The reason of the transaction was to develop and implement a legal entity structure that is efficient from a financial, capital and regulatory perspectives. It also reduces costs and improves capital efficiencies. The capital ratio of Lloyds Banking Group did not change following the restructure mentioned above.

Lloyds Banking Group is accounted to be a largest British financial services group. For instance in 2011 its revenues concluded £26.812 billion and the number of people employed grew up to 120,449 (2011).

Unlike Lloyds Banking Group, New Look Retail Group is not listed on the stock exchange however has its own board of directors to manage the company effectively. New Look Group is a privately-held business, owned by the company members, which does not trade its shares to the general public on the stock market exchanges . 

Although New Look Retail Group is less visible, it has a huge importance in the world’s economy. For example in 2008 it accounted GBP £1.147 Billion in revenue and employed 30,000 employees worldwide including 17,000 in UK.

DEVELOPING A CODE OF PRACTICE

Over the last decade a number of reports have been commissioned into the subject of corporate governance and as a result a number of codes of best practice have emerged. The purpose of these codes is to increase the transparency and accountability in the manner in which the company is governed.

The codes of best practice are drown up specifically in the context of particular companies however I believe that the principles should equally be applied to all companies in the interest of a further development of the codes of practice.

Researching a few companies and how they comply with the codes of practice I would like to point out there is a number of the key principles that every company should follow:

(i)                 Equitable treatment of shareholders is one of the most important codes in my opinion. Every organisation should respect the rights of shareholders and help them to exercise those rights. For instance, this can be done by delivering open and effective communication as well as encouraging share shareholders to participate in general meetings.

(ii)               Acting in the interests of other stakeholders. Organisation  should recognise there is a legal, social and market driven obligation to non-shareholder stakeholders among which are employees, suppliers, customers, investors, local communities, policy makers, etc.

(iii)             Integrity and ethical behaviour. Integrity should be a fundamental requirement in choosing corporate officers and board members. The board of directors should also develop, conduct and promote ethical and responsible decision making.

(iv)             Disclosure and transparency. Organisations should clarify and make publicly known the roles and responsibilities of their board and management to provide stakeholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company’s financial reporting. Disclosure of material matters concerning the organisation should be in time and balanced to ensure all investors have access to a clear and factual information.

AIB is reckoned to be a company that complies with codes of practice in every manner, especially with regard to keeping the shareholders informed of the changes within the organisation. For instance it constantly warns its shareholders whether the price on share will grow or reduce. This also supports a fact of its compliance with the code of practice with relation to being a transparent company willing to disclose the share price change publicly (independent.ie, 24 June, 2011).