Why Bob Diamond's Pay Mattered

03/07/2012 10:58 BST | Updated 01/09/2012 10:12 BST

When Barclays board tried to force through a massive pay deal for Bob Diamond, they looked weak. Now that he's been forced to step down, they look weak and stupid. The reason that the argument over Bob Diamond's pay mattered was that it put the relationship between CEO and board under a spotlight - and made them both look ugly.

Caving into Diamond's argument that pay had to be kept high - for himself, of course, but also for others - meant the bank allowed itself to be held to ransom. Why? Implicit in his argument was the idea that, without high pay, talent would walk. But the number one job of any leader is to recruit great people and create an organisational structure that is so talented and robust that it can function well without him (or her.) That's what delegation, structure and succession planning are all about. Any business that is wholly dependent on a single individual, or even just a few key individuals, is risky, vulnerable to accidents, viruses and moods. Nobody can call that great leadership. Now that Diamond is gone, the leadership vacuum is obvious, with ample evidence that neither he nor the board did its job.

Of course Barclays wasn't the first, and certainly won't be the last, organisation to feel itself at the mercy of a charismatic CEO. J.P. Morgan, Glaxo Smith Kline (under Garnier) BP and dozens of others act the same way. The board doesn't really know how the business functions; they're persuaded that only a charismatic leader really understands an organisation that is usually too complex for its own good. So they reward failure: the leader's - and their own. They're prepared to provide ludicrous compensation packages because the one thing they don't want to do is look under the covers and try to figure out how the whole thing really works - or, indeed, if it works. Far easier to throw money at the problem and hope it doesn't walk away.

But there's a more insidious side to astronomic pay - and that's to do with the anti-social side effects of money. A swathe of psychology experiments prove, over and over again, that the more money people have, the less they feel connected to or engaged with other people. In just one experiment, those most preoccupied with money proved to be those least prepared to help others. In a more recent academic paper, individuals with high social status were shown to be less mindful of other people, more inclined to cheat and to lie and to believe that greed was good. Even a real world study demonstrated that drivers of expensive cars are less likely to give way at intersections or to stop for pedestrians. What these and scores of other studies point to, again and again, is that we can be motivated by one thing at a time: the more we think of money, the less we think of other people.

On a simple level, we can all see how this plays out. If you have the money to pay for a nanny, you don't need to throw yourself on the mercy of neighbour or relatives. If you have the means, you needn't obey parking restrictions. If the fine for breaking a law isn't great, then that fine becomes merely a price tag. As Michael Sandel has written, so compellingly, money can now buy you a family, a longer life or the right to pollute. As such, money is the ultimate anti-social behaviour order, providing the means to disconnect the wealthy from everyone else.

That both the board and its CEO were out of touch and anti-social is now brutally obvious. The chaotic mixture of bravura, apologia, resignation and non-resignation only demonstrates how dysfunctional and political this sorry mess of a bank is. That chaos didn't start this week and it won't end any time soon. And please let's not talk about culture change. Getting the toxins out of British banking will take much more than that.