Barclays 2011 Annual Report Download - page 7

Market conditions in the second half of the year
were particularly difficult as investor nervousness
over global economic growth prospects grew
and concerns about the fiscal deficit of certain
Eurozone countries became acute.
The Board is resolved to navigate the current difficult economic
environment safely, ensuring that Barclays is positioned to continue to be
profitable and successful in the future. We are also committed to acting as
responsible corporate citizens at a time when so many people have been
affected by the financial crisis and subsequent economic downturn.
The Board and I are very conscious that returns to shareholders have been
unacceptably low in recent years. The urgent priority for the Group in this
respect is to improve its Return on Equity (whilst not increasing leverage),
as the correlation between the price to book value ratio (and hence share
price) and Return on Equity has been very strong. In the short term, our
business is still adjusting to the significantly higher levels of capital that
we now have to hold as a result of new regulatory requirements.
Accordingly, we are focused on ensuring that actions are in place to drive
a significant and sustainable increase in the Return on Equity and, hence,
the share price over the medium term. The share prices of banks were
impacted during the year by the Eurozone debt crisis, which deteriorated
further in 2011, with sovereign bond yields in a number of countries rising
to unsustainable levels. Fortunately, there has been notable progress over
the past few months, with Eurozone leaders committing to a system of
enforceable fiscal rules designed to bolster confidence in the ability of
countries to service and repay their debt. In addition, the action of the
European Central Bank to provide liquidity support to banks has helped
confidence. Although financial market volatility is likely to remain high,
we believe the current European downturn will be moderate.
Uncertainty of regulation continues to dominate the agenda, however
there are welcome signs that some of the regulatory fog within which we
have been operating over the last four years is beginning to clear. The
publication of the rules regarding the capital levels to be held by
“Systemically Important Financial Institutions”, of which Barclays is one,
and the acceptance by the UK Government of the Final Report by the
Independent Commission on Banking, were important milestones in this
respect. We welcome the move towards regulatory certainty that this
brings, as it allows Barclays and the rest of the banking industry in the UK
to plan ahead with a greater level of clarity. Barclays engaged constructively
with the commissioners during their deliberations and the final report
makes a number of recommendations which will make the industry
safer and more sound. Whilst we do not agree that the proposed retail
ring-fence is the best solution, we are clear that Barclays can accommodate
it and we will work with the regulators and the Government on its
introduction. Most importantly, it means that the universal banking model
which we operate, and which we believe brings diversified strength to our
business, will continue to be valid for the future. It is critically important
that the new regulatory architecture is monitored carefully to ensure that
it does not result in unintended consequences, particularly given the
essential role that banks need to play in supporting economic recovery.
It also continues to be vital that international banks such as Barclays can
operate on a global level playing field and there are some concerning signs
that the UK continues to be super equivalent in a number of key areas.
Remuneration
Remuneration continues to be the subject of considerable discussion. It
remains our policy that we only pay for performance, not failure, and that
we only pay the minimum necessary to be competitive. Historically, there
Your Chairman’s view
The Chairman’s primary role is to provide leadership to the Board,
creating the conditions for overall Board effectiveness and ensuring
that Barclays satisfies its legal and regulatory responsibilities.
Here he takes the opportunity to provide his views on the performance
of Barclays, the Board, and thoughts on current economic conditions.
has been intense competition for talent, particularly in the investment
banking industry. The difficult economic environment and the impact
of regulation on the profitability of investment banking lessened this
competition in 2011 and, as a consequence, performance related pay
across the Group reduced significantly. We recognise that compensation
has to adjust to the new reality of lower returns for the sector and we
will continue to ensure that our remuneration policies and practices are
aligned with the long-term interests of our shareholders.
Citizenship
Barclays has always taken its role in society seriously and believes that
being a valued, respected and trusted citizen is vital in creating sustainable
shareholder value. That ethos has been part of our corporate values since
the bank was founded over 300 years ago. Events in the global economy
have led us to reflect further on how we help others recognise the value
of what we do.
Citizenship as an execution priority for Barclays is about three things: how
we contribute to growth in the real economy; the way we do business; and
supporting our communities. We see our success as inseparable from that
of the communities we serve and so will bring the same discipline and focus
to this part of our agenda as for everything else that we do. Indeed, our
community investment increased by 15% to £63m in 2011. More importantly,
by aligning our community investment strategy to our core business, the
positive impact of our activity is much more than just a financial contribution.
Youth unemployment is at record levels and last year we saw the
consequences of the resulting disaffection expressed in a very public way.
The future of communities and economies around the world is reliant on
the next generation having the right skills. Our community programmes
are focused on empowering disadvantaged young people by helping them
access the skills they need to achieve financial independence and security.
Talented and diverse employees are not only crucial to delivering our
Citizenship agenda, but are the foundation of our success across all
business priorities. We have committed to ensure that at least 20% of our
Board will be made up of women by the end of 2013, rising to 25% by 2015.
Board Changes
The only Board change during the year was the retirement of Sir Richard
Broadbent as Deputy Chairman in September. Richard joined the Board in
2003 and was an outstanding non-executive Director, chairing the Board
Risk Committee from 2006 to 2009 and the Board Remuneration
Committee from 2007 to 2011. He became Senior Independent Director in
2004 and Deputy Chairman in 2009. His clarity of thought and steadiness
of nerve were particularly valuable during the financial crisis. We will miss
his insights and immense contribution and wish him well for the future.
Conclusion
In conclusion, I would like, on behalf of the Board – and on behalf of all our
shareholders – to thank Barclays 140,000 employees. They have continued
to work hard in a very difficult environment to deliver excellent service to
our customers and clients. It is through their efforts that Barclays will
succeed in rebuilding the trust of our key stakeholders and deliver
sustainable value to our shareholders.
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 05
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