Why is it that banks have been so badly run? It comes down to one simple thing: those that are promoted into management positions are typically promoted because they've been fantastic producers, not because they're great managers. And in banking, being a great producer and being a great manager are frequently inversely correlated.
On the markets side at least, being a great producer doesn't involve much management skill at all. If you're a mid-level trader, you quote prices and you manage the positions in your book. You may have a couple of juniors to run some analytics and support you generally but, without trivialising what can be a very skilled and complex technical role, there is not that much more to it than that.
Your performance will be all about P&L. The learning curve is all about deep but very narrow technical expertise, not a broad management skill-set.
Contrast this with a similar mid-level employee in a software company. The software guy might be working on a particular software package. He will need project and people management skills as a matter of course in his role. He will need to deal with multiple streams of work and multiple constituents from programmers to marketers, to distribution, to legal. He will come out with a much broader, and more transferable, set of management skills.
What should banks do about this state of affairs? The obvious, if naive, conclusion is to put general managers into management positions not producers.
However, there are issues with this. General managers lack the hard earned understanding of financial markets, clients and risk that only comes from spending real time in the trenches. They also lack the credibility and respect of those they would manage.
Bankers are not exactly the easiest people to manage in the first instance. If you earn high six figures, even seven figures and can up root and go to another shop, your sense of obligation to your boss, or anyone for that matter, is minimal.
Evidently, however there is a way of managing these high earners. Traditionally, it's been all about controlling the bonus purse strings. This will remain the case in future, but with a difference. As bonus systems emphasise long run profitability, managers will need to do more than merely harness their charges to maximise P&L in a single year.
In turn, this will call for more holistic management skills. And this will put more emphasis on non-producers in place of producer roles. Banks need to start paying for management skills, not just for the ability to immediately impact P&L.