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• Case | HBS Case Collection | 2013 (Revised from original 2013 version)

  Barclays and the LIBOR Scandal

  Clayton S. Rose and Aldo Sesia

  In June of 2012, Barclays plc admitted that it had manipulated LIBOR—a benchmark interest rate that was fundamental to the operation of international financial markets and that was the basis for trillions of dollars of financial transactions. Between 2005 and 2009 Barclays, one of the world's largest and most important banks, manipulated LIBOR to gain profits and/or limit losses from derivative trades. In addition, between 2007 and 2009 the firm had made dishonestly low LIBOR submission rates to dampen market speculation and negative media comments about the firm's viability during the financial crisis. In settling with U.K. and U.S. regulators the firm agreed to pay $450 million in fines. Within a few days of the settlement, Barclays' CEO, Robert Diamond, had resigned under pressure from British regulators. Diamond blamed a small number of employees for the derivative trading related LIBOR rate violations and termed their actions as "reprehensible." As for rigging LIBOR rates to limit market and media speculation of Barclays' financial viability, Diamond denied any personal wrongdoing, and argued, that if anything, Barclays was more honest in its LIBOR submissions than other banks—questioning how banks that were so troubled as to later be partly nationalized could appear to borrow at a lower rate than Barclays. This case explains why LIBOR was an essential part of the global financial market, the mechanism used to establish the rate, and what Barclays did wrong. The case allows for an examination of: i) the consequences of violating the trust of market participants, ii) cultural and leadership flaws at Barclays; iii) the challenge of effectively competing in a market where systemic, and widely understood, corruption is taking place, iv) the complicity of regulators in perpetuating a corrupt system; v) what might, or might not, be effective remedies for the systemic flaws in LIBOR.

  Keywords: financial systems; financial services; ethics; corruption; regulation; culture; leadership; general management; Banking Industry; Financial Services Industry; United Kingdom;

  Citation:

  Rose, Clayton S., and Aldo Sesia. "Barclays and the LIBOR Scandal." Harvard Business School Case 313-075, May 2013. (Revised from original January 2013 version.)

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• Teaching Plan | HBS Case Collection | 2013

  High Wire Act: Credit Suisse and Contingent Capital

  Clayton Rose and David Lane

  Late in 2010, Credit Suisse CEO Brady Dougan and his team considered whether or not to issue contingent capital, which Swiss regulators would require by 2019. They faced a number of substantial issues, including: Would contingent capital actually work as conceptualized and provide sufficient loss absorption when called upon? Would it be cost effective? Would there be sufficient demand for this new instrument? What were the risks to Credit Suisse's reputation with clients and regulators if an issue did not go well? In addition, The Basel Committee, the body that recommended global bank capital adequacy standards, had decided that much existing bank "hybrid debt" would no longer count as capital for regulatory purposes, meaning that Credit Suisse and other banks would need to replace this portion of their equity accounts with some other form of capital. However, the Basel Committee had yet to decide whether contingent capital would count as capital in the new "Basel III" regulatory regime.

  Keywords: Financial Institutions; Capital Markets; Financial Crisis; Decision Choices and Conditions; Leadership; International Finance; Financial Liquidity; Risk and Uncertainty; Competitive Strategy; Financial Services Industry; Switzerland;

  Citation:

  Rose, Clayton, and David Lane. "High Wire Act: Credit Suisse and Contingent Capital." Harvard Business School Teaching Plan 313-048, May 2013.

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• Case | HBS Case Collection | 2013 (Revised from original 2010 version)

  Aubrey McClendon's Special Incentive Compensation at Chesapeake Energy (A)

  Paul Healy, Clayton S. Rose and Aldo Sesia

  Aubrey McClendon, founder and CEO of Chesapeake Energy, was, according to Fortune Magazine, the highest paid U.S. CEO in 2008 receiving over $100 million in total compensation. McClendon received this compensation despite a significant drop in the company's stock price and financial performance during the year. The (A) case addresses the specifics of the compensation and the rationale for the compensation from the perspective of Chesapeake's board and its compensation committee including McClendon's role in consummating several joint ventures, which the board and committee believed positioned the company for future growth in the relatively young industry of unconventional natural gas exploration and extraction. In addition, the (A) case describes the role of the compensation committee and the company's executive performance measurement factors.

  Keywords: Financial Statements; Financial Reporting; Price; Stock Options; Valuation; Joint Ventures; Business Growth and Maturation; Economic Growth; Growth and Development Strategy; Change Management; Energy Industry; United States;

  Citation:

  Healy, Paul, Clayton S. Rose, and Aldo Sesia. "Aubrey McClendon's Special Incentive Compensation at Chesapeake Energy (A)." Harvard Business School Case 110-047, April 2013. (Revised from original January 2010 version.)

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