THE ANDREW DAVIDSON INTERVIEW: PETER ELLWOOD, Lloyds TSB's chief executive - In his 'restless quest for perfection', Lloyds TSB's chief executive has doubled profits and streamlined services. Yet his failed Abbey National bid soured admiration, and persis

Last Updated: 31 Aug 2010

In his 'restless quest for perfection', Lloyds TSB's chief executive has doubled profits and streamlined services. Yet his failed Abbey National bid soured admiration, and persistent praise for his predecessor rings in his ears. Does he have time and the backing for plan B?

Peter Ellwood has the look of a man built to withstand the odd glancing blow: short, compact, chunky, with a ready smile and an unforced good humour that makes his mood curiously difficult to read. It's only when he laughs and you see a flash of teeth beneath the grey sweep of hair that you think, hmm, maybe there's more vulpine determination here than you realised.

As chief executive of Lloyds TSB, one of the biggest banks in the world (pounds 8 billion income, 80,000 employees), and newly appointed chairman of the Industrial Society, the respected business think-tank, he might have plenty to be happy about, you would think. But not everything is going Ellwood's way right now. In July, the DTI, after advice from the Competition Commission, blocked Lloyds TSB's bid for British rival Abbey National, throwing a spanner in the works of Ellwood's domestic expansion strategy. And Lloyds TSB's shares have been on the slide too - despite five years of escalating annual profits and dividends at the company - underperforming the banking sector by nearly 20% since January 2000.

Shareholders, we are told, are worried. While other banks have built on mega-deals, Lloyds TSB has stalled. After the glory days of the 1990s when Ellwood's predecessor Sir Brian Pitman took the company from behind the pack into pole position in British banking, there are now doubts about the plc's strategy and, in particular, Ellwood's authority. The recent slight dip in interim profits combined with the Abbey rebuff prompted another wave of questioning headlines: 'Lloyds shareholders look for leader-ship', 'Ellwood's last chance'. Sometimes, as a boss, it must feel as though the hands are slowly tightening round your neck ...

But Ellwood, sitting in shirtsleeves in his wood-panelled, fourth-floor office at Lloyds' very grand City of London HQ, hardly looks like a man being throttled by events. 'Critics criticise what we do,' he says thoughtfully, 'and some praise what we do. Should we take too much notice? No. We should stick with the vision, get on with delivering strong returns to shareholders, strong returns on equity, and keep moving forward with a sense of restlessness.'

That's how he speaks, logically, chummily, rarely missing a beat, as if he feels no pressure whatsoever and has a considered answer for everything.

And he is right to be sanguine, of course - the press and analysts will find other targets, he has to keep his objectives in focus. But it is a strange anomaly that he should receive so much flak when, as a friend puts it, 'he has produced such stonkingly good results' in the past few years. And when he is plainly, to anyone who meets him, a rather intriguing type of leader, with a greater range of interests and depth of deliberation than you would expect from your average FTSE-100 boss. Or maybe that's the problem.

There are other factors too: results are one thing, implementation of strategy another, and who you follow is a third. It is something of a cliche now that Ellwood has struggled to overcome the legacy of Sir Brian.

Since Pitman, a charismatic, ebullient man, only recently stepped down as chairman of Lloyds, the shadow he cast remains a long one.

But first things first. Ellwood says he is unhappy about how the Abbey deal was blocked, with the Competition Commission citing the near-30% chunk of the current-account market the combined group would hold. 'It's not logical,' grumps Ellwood. 'Look at the NatWest/Royal Bank of Scotland deal,' which, he points out, gave the combined group a similar grip on the small business market.

Yet he can live with the disappointment. 'I think we always knew there was a risk it would be turned aside, but we felt we had to go for the deal. We could have been castigated if we hadn't tried to. It was all a bit touch-and-go, but people like me are paid to take risks, and it was happily backed by shareholders of both companies.'

So now he has embarked on plan B, scouring Europe for another target for takeover or merger. The logic is simple: the global banking market is consolidating; everyone has to find the right partners to survive.

Ellwood even has a new chairman, Maarten van den Bergh, an able Dutchman with 32 years at Shell under his belt, seemingly hand-picked to open European lines of communication. That's the good news.

The bad news is that Lloyds faces formidable competition on the Continent, not just from every other sizable bank in Britain, all of which are looking for potential partners, but also from many of Europe's domestic giants, scrabbling to expand too. It's a scrum. Which are the right deals? And how do you put them together, especially while Britain remains outside the euro zone? No wonder Ellwood warns that it will all take time.

And time may be the one thing he hasn't got. Ellwood is 58 and Lloyds bosses are supposed to retire at 60. Not long to bed-in a new merger partner and turn around City perceptions of your leadership. Nor, you might think, the right moment to take on a commitment such as chairing the Industrial Society.

Ellwood's smile remains unbroken. Contrary to what I've heard, he says, the bank's major investors have no qualms about his approach. As for the work of the Industrial Society, it dovetails neatly with his own concerns and the problems the company faces.

Which are? How to secure and motivate staff in a banking sector that, frankly, has been a pretty demoralising place for most employees to work in recently - branches closing, staff laid off in their thousands, customer resentment of new efficiencies, mistrust of the trend towards globalisation. It is no coincidence that banks are now pouring millions into retaining their best staff, and motivating them with charity giving programmes, community schemes and the like. Anything to show people that there is more to banking than just money or redundancy.

'It's terribly important,' says Ellwood earnestly, 'that we look to the future, and understand how to get employees feeling good about working somewhere. What is it that employees really want? And are employers delivering it? That's what interests me.'

That, he adds, is why he chairs the Employers for Work/Life Balance forum launched with the Department for Employment last year. It couldn't be more pertinent to the bank's aspirations. 'To be a preferred employer is simply very attractive in the marketplace.'

There is a rich irony here, of course, because if anyone has been a flag-carrier for the ruthless rationalisation of banking workers over the past decade and a half it has been Ellwood. He was promising 9,000 layoffs after the Abbey deal, and he spent much of the '90s taking costs out of Lloyds and TSB after their merger, a deal he brokered as TSB boss that guaranteed him the number two slot in a vastly more powerful banking group - at one stage Lloyds TSB was the world's largest bank by stock market value - while ensuring P45s for quite a few of his old workforce.

Even as I write this, there's another announcement from Lloyds TSB of 500 more voluntary redundancies. Such has been the endemic overcapacity in the UK banking sector that it's perhaps inevitable that the current breed of banking bosses is expert at cost-cutting. But it raises an awkward question: can Elwood expand as successfully as he rationalises?

'I'd like to be a grower,' he says, considering it, 'but when you cut, they say you're only a cutter, and when you grow a company, they say you are profligate. The great thing is not to take too much notice of what people say outside the company.'

That clearly is something of a theme for Ellwood. Others point out that he has pulled off the right deals in the past: the Lloyds-TSB merger was his deal, and his long and persuasive pursuit of Scottish Widows (bought last year) shows he can reel in the most reluctant fish. He is right not to flinch under media pressure.

Yet it is telling that he does so little to polish up his own PR. Perhaps the Industrial Society will help with that, although he is not a natural performer. 'Peter is less at ease with himself than his manner implies,' says one friend, who suggests that Ellwood's flinty pursuit of efficiency often pushes him further than he himself would like to go. Hence the insistence on concentrating on the task - don't listen to outsiders, never look back - and resolutely refusing to indulge in any spin. 'He just does what needs to be done, and he doesn't court fame or seek popularity.'

Nor does Ellwood take up perk-filled directorships at other large companies - he did a brief stint at Sears in the 1990s then resigned - but instead devotes his extra-curricular energies to the Royal Philharmonic Orchestra, where he sits on the board. You will also find, if you delve deep enough, that he is an accomplished musician, as is his wife, and an ambitious gardener, who has just bought a chunk of farmland round his home in Northants and plans to landscape it into an environmentally friendly combination of lake, woodland and meadows.

I would bet that the strong public-service streak that runs though the Ellwood family plays a part too. Ellwood has two sisters and a brother who have all worked as teachers. One, a headmistress, has received an OBE for her services to education. Ellwood's father was an engineer who helped devise the MOT at the Ministry of Transport, his mum worked at the Post Office. He was brought up in Lancashire and Cheshire, a grammar school boy who went into banking at 18 - these nowt-flash roots, where everyone is expected to make a contribution without shouting about it, probably still have a bearing on his character today.

So what persuaded him to be a banker? It was that or journalism, he grins.

What sold him on banking was a short course at Lloyds when he was 15, which he did on the advice of a teacher.

'I spent a few days in Hindhead in Surrey, and found it quite interesting. Then one day they brought me up to this very building and showed me the strongroom, and you could move this massive door with one finger, and it weighed tons, and I thought, there's something in this banking thing after all!'

Ellwood laughs, that wide smile creasing his podgy face. The building in question, Lloyds' marbled and panelled Lombard Street HQ, now just seems plainly anachronistic ('Hopeless building,' says another banker, 'they should turn it into a hotel'). Did he think he would come back as boss one day? Of course not, says Ellwood. Anyway, three years later, when he finished school, he sent out a wodge of applications and accepted a job with Barclays in Manchester. Then, before he started, his family moved to Bristol. 'I told Barclays and they gave me another job in Bristol, and a pay rise, before I'd even started! I thought, that's a good precedent.'

And he's been lucky like that throughout his career, mixing drive and hard-nosed ambition with a knack for making the right job-moves. He worked his way up through the branch system in the regions before moving to London at 30, starting at Barclays' Fenchurch Street branch in the City. That led to head office jobs as a general manager's assistant working for the chairman, before being promoted to personnel director of Barclaycard in Northampton, then finally chief executive of Barclaycard. And he's always loved it, he says, thrived on the pressure. 'I never found banking dull once.'

But when Barclaycard was successful and the calls from headhunters came in, it didn't take him long to make up his mind. In 1989, he left to run retail banking for TSB. Why did he leave?

Because, he says, Barclays was virtually a family business and he knew he'd never be boss. 'They were making lots of nice noises that, one day, I might be general manager, but general managers don't run banks, chief executives do.'

So he swept into TSB and established his reputation as a brilliant manager of cost efficiencies. Branches were closed, staff let go, the financial figures got better and better. He was later promoted to group CEO. His TSB chairman, Sir Nicholas Goodison, describes him as 'the best chief executive I ever worked with', a get-up-and-go character who was constantly pushing things through - the complete opposite of the fusty banking management style that dominated in Britain for so long.

Ellwood cut such a swathe that, when TSB decided it must buy others to grow, his reputation actually jeopardised many of the deals. 'Everyone we approached said: 'No thanks, you'll just chop costs and we don't like that.' So I thought, if we can't buy something it is probably in the interest of shareholders to sell ourselves to someone else, and I selected Lloyds.'

The deal was brokered over dinner with Pitman at JP Morgan, TSB's bankers.

Ellwood would run the retail side of the newly merged group for a year, then take his chances when Pitman, 12 years his senior, stepped up to chairman. The group had complementary customer bases, a similar focus on costs and growth. It all looked peachy. And the two bosses, it seemed, got on famously.

A successful marriage? 'Absolutely, we doubled the profits, up pounds 2 billion to pounds 4 billion, and we reduced staff numbers by 13,000, but we did it with great sensitivity and compassion and awareness that these people are not bad people; it is simply down to the fact that we can get economies of scale, and so we achieved them.'

And has the customer benefited? 'Yeah, I think the customer has. We have got better products because we have been able to leverage the cost base, and get more distribution through more branches than just Lloyds or TSB had; we've been able to invest in telephone banking and internet banking. So, yeah, better service.'

And TSB shareholders? 'Sure, the shares are about three or four times what they were in 1992.'

And would he have pushed through the merger if his job had not been guaranteed?

'Absolutely. I would have walked if required. We discussed what my role would be. There would be two deputy chief executives, and I made no requirement that I be made CEO when Brian moved up. I said I would take my chances with anyone else. But if they had said I would never be chief executive, then, obviously, I would have left.'

Others confirm that Ellwood's appointment was by no means a sure thing.

He worked hard for the top slot. But perhaps it has been more difficult than he expected, following Pitman. Do they still get on well? Ellwood wrinkles his nose. Whatever relations are like now between him and Pitman, he's unlikely to tell me. Equally, he would not be human if the endless choruses of we-love-Brian from press and analysts had not got under his skin. Clearly what irritates him is the whole issue of control.

'I can't afford to get too excited about what people write about that,' he says. 'The deal with Brian was very clear when I was asked to be CEO in 1997, that there could only be one person running this bank and that was me. Of course, Brian had a high profile because he had been around a long, long time, and he used to enjoy speaking engagements, and still does. But that doesn't worry me so long as I am allowed to run the bank and get on with it. He managed the board, he managed the shareholders and he was there as a sounding board, but there is absolutely no ambiguity, irrespective of what you read in the press about who ran the company. It's been my bank since 1997. You can't have two bosses.'

Others say that it's a quirk of circumstances that the two men's different (but complementary) characters should become an issue. Both are accomplished managers, but Ellwood's more considered, self-deprecating style simply works against him when outsiders query the company's progress.

'Peter is not a natural leader in the way you would expect; he's very thoughtful and gains respect from the way he thinks things through,' says one who has worked with him.

'He's very likable, very straight,' says another, 'but he's not slick, and journalists like slick.'

Do we? Certainly, Ellwood has little front. His manner barely changes when talking in interview about joining the euro (he's pro, obviously, but he says the banks' customers are split 50-50), or expansion in America ('we're quite relaxed'), or explaining to me later his love of Italy and especially Florence and its great historical characters: Savonarola, Brunelleschi.

Tuscany is where he often spends his time off, renting big houses, getting the family over. He has three grown-up children - one daughter works in the City, another recently stepped down from a job at Buckingham Palace, his son has just left Manchester University - and he's already a grandad. He's been married to his wife Judy for more than 30 years.

And what about that musical ability? I've read about Ellwood playing the violin while his wife accompanies him on piano - it all seems a bit uncharacteristically effete for the boss in front of me. Later, while posing for his picture, Ellwood brushes it aside. 'Oh, I just play a bit of fiddle,' he says. ('That's absolutely Peter,' laughs a colleague, 'he'd never use a word like violin, he is so self-effacing.')

But he is clearly also very determined, more so than many might think from his bluff exterior. I wondered whether chairing the Industrial Society wasn't the start of something else, his preparations for life after Lloyds, for getting stuck into the sort of issues that he is interested in and for making that contribution which, as a bank boss, you just don't have the space to focus on.

Ellwood's reaction spoke volumes. What? Leaving Lloyds at 60? Why did I think that? After all, Pitman didn't step down as CEO till he was 66.

'The standard is to go when you are 60,' he says, with a sly grin. 'I understand that, but is it laid in stone? Broadly, maybe, but I guess my predecessor stayed a little while longer, he-he-he.' He laughs more to himself than out loud. Anyway, it seems he is not going to give me a straight answer on the retirement question.

Would shareholders want him to stay? Before I can ask that, he gets in his pre-emptive strike: a personal credo, including a list of have-dones, which I guess he has rolled around in his mind more than once in the past few months.

'It's important to leave the company in a better state than it was. Since I've taken over the company, we have doubled the profits, got the efficiency ratio down to one of the lowest of any major financial institution, we have sold to more customers than ever before, we have got the best distribution capability of any financial institution in Europe, I believe ... But we have this restless quest for perfection. I certainly have that. It drives me to say: that's OK, but we can do better. We can always do better.'

And you can't say fairer than that. The next 18 months will probably prove things, one way or another.

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