SPECIAL: Impact Banker Alexander Hoare — The Wide Gate and the Narrow One
In this insightful interview, Alexander Hoare shares the secrets behind the 350-year-old family bank's success, emphasizing the importance of purpose, simplicity, and long-term thinking. Discover how their contrarian approach to growth, technology, and relationships creates a resilient and enduring business model.Key Topics Long-term family business successContrarian approach to growth and technologyRole of unlimited liability in decision-makingImportance of relationships over transactionsSimplicity and diseconomies of scale in banking Long-term stewardship and legacyThe concept of obliquity and its application in businessBuilding and maintaining trust and reputationImpact investing and societal contributionThe importance of culture and values in bankingChapters00:00 [https://www.youtube.com/watch?v=MuXl11Fnnu8] The Unconventional Success of C. Hoare & Co.11:40 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=700s] Contrarian Approaches in Banking16:33 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=993s] The Legacy and Governance of C. Hoare & Co.21:20 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=1280s] The Role of Partners and Succession Planning31:22 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=1882s] Unlimited Liability: A Unique Perspective39:21 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=2361s] Consequences of Limited Liability44:19 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=2659s] Simplicity vs. Complexity in Business49:19 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=2959s] Building Relationships Over Transactions57:47 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=3467s] The Power of Word of Mouth01:14:54 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=4494s] The Banker's Banker: Trust and Reputation01:21:20 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=4880s] Investing in Meaningful Impact01:28:45 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=5325s] Trust as an Uncommoditizable Asset01:33:14 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=5594s] Making Your Own Luck: The Role of Judgment01:38:49 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=5929s] The Importance of Staff and Culture01:43:12 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=6192s] Quality Over Quantity: The Data Dilemma01:48:24 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=6504s] The Value of a Large Family Network01:52:49 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=6769s] Navigating Wealth: Parenting and Money01:57:40 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=7060s] Environmental Stewardship: The Seagrass Initiative02:04:51 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=7491s] Faith, Family, and the Inner Life02:19:22 [https://www.youtube.com/watch?v=MuXl11Fnnu8&t=8362s] The Emotional Aspects of Money and Philanthropy
My new book The System Gambit [https://www.amazon.com/dp/B0GY8J23SK] has C. Hoare & Co. as a case study:
In 2008, as the world’s largest banks collapsed or were nationalised, one smaller bank on Fleet Street had the opposite problem: too much money was arriving at its door.
C. Hoare & Co., founded in 1672 and older than both the Bank of England and the United States, came through the crisis with barely a scratch, its deposits swelling as frightened money looked for somewhere run by prudent people with a clean balance sheet.
For decades the bank had been doing the very things every consultant and textbook had told its eleventh-generation partner not to do.
As Alexander Hoare [https://www.hoaresbank.co.uk/alexander-hoare] recalls in Impact Banker [https://www.amazon.com/Impact-Banker-PublishU-Alexander-Hoare/dp/1917829426], “many people told me we were mad to carry on in the modern litigious world with unlimited liability, but in 2008 when the Great Financial Crash hit, people looked around for honest bankers with a clean and conservative balance sheet, and the deposits piled up.”
In the year conventional wisdom was put to the ultimate test, the man who had ignored it for decades was suddenly the most sought after.
Alexander Hoare [https://en.wikipedia.org/wiki/Alexander_S._Hoare] is a nonconformist, and a cheerful one.
“It has pleased me,” he writes, “to do many things wrong from a conventional point of view.” He kept unlimited liability when the whole City fled to limited liability. He keeps his bank deliberately small while everyone worships scale. He turns away profitable customers, has “never aimed to maximize profits,” and once sold a good, growing business in order to become smaller.
He quips that his job “is to keep the family poor.” And he states his conviction clearly:
“I see maximizing short term profits as the wide gate to failure.”
The word nonconformist is apt. In England a nonconformist was someone who declined to worship at the established church, not from revolt but from conviction, and many of Britain’s most durable enterprises were built by people of that temperament.
Alexander calmly declines the established church of contemporary finance: scale at all costs, short-term shareholder-value maximisation, limited liability, and the eternal myopia about the next quarter.
It would be easy to dismiss this as nostalgia. But examined closely, nearly every one of his tenets is the same structural principle: he re-couples a feedback loop the industry has, for short-term greed, deliberately decoupled.
* Action to consequence.
* Price to value.
* The firm to its community and society.
* The present to the future.
Decoupling those reinforcing feedback loops window-dresses the numbers in the short-term but re-coupling them is better for the business, and over three and a half centuries, have shown it is also what better-for-the-world looks like.
1st tenet: actions have consequences
Begin with the nonconformity that sounds most reckless.
Every partner of C. Hoare & Co. [https://www.hoaresbank.co.uk/] stands to lose everything they own if the bank fails: homes, savings, including their children’s inheritance. To most financiers this is complete lunacy; the entire architecture of the limited-liability corporation exists to prevent it.
Alexander inverts the frame. The natural order is for actions to have consequences; it is in fact the contemporary arrangement that is the aberration from historical pattern.
Until Big Bang in the late 1980s nearly every City firm traded on unlimited liability, and “my word is my bond” was an enforcement mechanism, not just a slogan. What followed its abolition was an era in which executives could half-bankrupt a country and walk away unscathed. Unlimited liability, by contrast, “focusses the family on a culture of excellence, not scale.”
Through a first principles systems thinking lens the argument is obvious.
Any successful system needs feedback: consequences must return to the actor and shape the next action. Limited liability severs that loop, capping the decision-maker’s downside at zero while leaving the upside unbounded.
A diversified shareholder optimises the ensemble average across many companies; while a partner with unlimited liability and a more than 350-year time horizon must optimise the time average, the single path of history where ruin is permanent.
A bet with a glorious expected value and a small chance of ruin is excellent for the ensemble and fatal for whoever gets ruined. This is why the book’s risk philosophy is so unfashionably simple: “banking is quite straight-forward if you merely avoid the mad and the bad.”
2nd tenet: perpetuate, do not maximise
The mission statement the older partners first mocked is seven words long:
“to perpetuate a profitable family business.”
It “does not say anything about conquering or winning,” and its ambition is bounded: “we want to survive as a family business for perpetuity. This means being just big enough, not vast.”
To the modern mind this is a category error: surely the purpose of an enterprise is to grow?
Here Alexander deploys the most counterintuitive finding of his forty years, borrowed from John Kay [https://en.wikipedia.org/wiki/John_Kay_(economist)]’s notion of obliquity:
“We have never aimed to maximize profits or to grow dramatically, and it turned out that not aiming at these things can be very effective at delivering them.”
Kay’s cautionary tale is ICI, which adopted shareholder-value maximisation as its explicit goal and destroyed itself pursuing it. Aim at excellent banking and profit arrives as a by-product; aim at profit directly and you strip the institution that produces it.
Donella Meadows [https://en.wikipedia.org/wiki/Donella_Meadows] identified the goal of a system as one of its highest leverage points:
change the goal and everything downstream follows.
Set it to maximise short-term profits and the system rationally destroys its future to grow the current quarter; set it to perpetuate and any gain that imperils survival is no gain, because the future is the whole point.
Extraction generates large early terms in a series that is then truncated. This is best illustrated by the average lifespan of an S&P 250 company falling from 60 years in the past to just 15 years now. The perpetuator generates decent terms forever, and a series that never terminates beats any short burst that does.
Eric Ries [https://en.wikipedia.org/wiki/Eric_Ries], in Incorruptible [https://www.amazon.com/Incorruptible-Good-Companies-Great-Stay/dp/0241692024], names the force this resists: financial gravity, the pull on every company exposed to the capital markets toward short-term extraction at the expense of mission and survival.
3rd tenet: small is beautiful, & KISS principle
Early on, Alexander adopted “two handy mantras: first, ‘small is beautiful’, and secondly ‘KISS’ (Keep It Simple Stupid).”
He concedes the apparent absurdity:
“Academically this is faintly ridiculous – a small bank should not out-compete, or even survive, against much larger competitors.” Yet it does, because the textbooks model only half the phenomenon, “the diseconomies of scale: the back-stabbing as executives climb the greasy ladder... and many, many other dysfunctions of large organisations.”
Complexity behaves like entropy: generated spontaneously, bottom-up, by every well-meaning patch and product, and never decreasing on its own.
The ideas Alexander refused “would have made us more money, but they would have built in a complexity premium further down the line.” Because complexity is born decentralised, only the top-down can reduce it, by someone with the authority and the stake to overrule a thousand local optimisers.
That is what “stick to the knitting” really is: top-down work against organisational entropy.
Here the tenets interlock. Keep the bank small enough for an owner to truly understand, and they can hold it in their head, take responsibility for it, and hand it on intact.
Let it outgrow comprehension and two failures follow: the next generation sells the incomprehensible behemoth, and the owners demand limited liability, because no one accepts unlimited responsibility for something they cannot even fathom.
Scale destroys comprehension; lost comprehension severs feedback loops; severed feedback ensures the eventual blow-up.
Smallness is not an aesthetic preference but the load-bearing condition that keeps every other loop closed with high signal quality.
The clearest proof is that a decade ago the bank sold its profitable, growing wealth-management arm and shrank headcount by roughly a fifth, concentrating IT, compliance and the partners’ scarce attention on the one business they understand best.
And then former rivals, no longer threatened, began referring their banking clients to it again. A short-term subtraction created a permanent, self-reinforcing inflow, a deliberate sacrifice of present performance to buy a structural condition that compounds. Alexander calls it common sense, which honestly goes to show how rare common sense is becoming.
Subscribe for free to receive new posts.
4th tenet: relationships, not transactions
One of the most powerful sentences in Impact Banker is this:
“We embody a culture whereby we reject profitable transactions – we want relationships not transactions.”
A bank that declines profit, on purpose, as a matter of identity. The asymmetry is stated with perfect symmetry: “We do not aim to compete with larger banks on transactions, but they cannot compete with us on humanity and empathy.”
A big bank can copy any product Hoare’s bank offers; what it cannot do is serve deep relationships at industrial scale, because the economics that make it big are the very economics that block the depth.
The market polarises, as Alexander puts it, into fine dining and McDonald’s, and the giants are structurally barred from the fine-dining side of their own industry. This is counter-positioning in its purest form: a position rivals will not take because taking it would destroy their model.
What the relationship is made of is trust: “our success is built on our reputation, and the trust customers place in us, both of which are developed over generations, but can be lost in a matter of days.”
In an age when anything copyable is copied at near-zero cost by anyone with a large language model, the slow, un-copyable, compounding asset is the only durable one.
The same tenet explains his deep insight about data & AI: “JP Morgan has over 1000 data scientists whereas we have just a handful. However, our data scientists know what data we collected in what systems for what purpose. I rather pity JP Morgan’s.”
Decision quality is bounded not by the volume of data you hold but by the quality of the signal where the decision is made. A thousand data scientists atop an ocean of aggregated data, several steps from the customer, produce precise forecasts of the wrong thing; a handful who know the customer produce the right thing.
5th tenet: good bankers and good citizens
The purpose Alexander gives the bank precedes the mission statement: “to be good bankers and good citizens.” He notes the rarity of this: “there are at any time some good bankers, and there are good citizens, but there are very few trying explicitly to be both.”
A systems thinker will once more notice a compounding feedback loop. The bank donates ten percent of profits through its charitable trust and has given “going back 300 years,” and the result is reciprocal: “We look after our community, and it seems our community looks after us.”
Schools, hospitals and hospices funded by good banking generate the trust, standing, goodwill and good customers that make the next century of good banking possible.
This is an old principle and he admits, “lifted straight out of the Bible”: “treat others as you would wish to be treated.” The golden rule is itself a feedback device, forcing the actor to simulate the consequence from the other side before acting, the very loop that limited liability and too-big-to-fail were built to disconnect.
When a global bank pays a nine-figure fine, its the shareholders who actually pay the fine, and the executives book it as a cost of doing business; at Hoare’s bank a fine “would come straight out of our own pockets,” which, Alexander notes, may be why there has never been one.
6th tenet: stewardship, & the discipline of enough
Beneath everything sits the word he believes capitalism has lost: enough.
“I sometimes quip that my job is to keep the family poor.”
Why would the steward of a banking fortune want that? Because they have run a multi-generational experiment. The seventh generation of Hoares, inheriting great wealth, “lost several stately homes, 15,000 acres, art... and a brewery with 25% market share of London porter.”
His verdict is: “This wealth destruction is sobering, but may have been a good thing.” It re-taught the family to work.
This is the deepest re-coupling of all, the present to the future. Alexander frames his role not as ownership but stewardship; partners are chosen “not... for their private equity skills with a view to flipping the bank in seven years, but for a long-term stewardship mindset.”
The Economist [https://www.economist.com/business/2023/04/05/the-resistible-lure-of-the-family-business] put the principle beautifully:
“a family business is not inherited from your parents; it is borrowed from your children.”
The heir, looking back, is tempted to spend; the steward, looking forward, must leave the soil richer than he found it.
Hence wealth passing to the most capable rather than the eldest; hence the deliberate hunger; hence his proudest boast about three and a half centuries of change being its continuity: “everything has changed in terms of processes, and nothing has changed in the essence of the business.”
Subscribe for free to receive new posts.
The engine: why only a closed loop compounds
Step back, because the general principle is the crux. A decoupled loop is an open loop, and open loops do not compound; they only leak.
Each cycle, value escapes: to the regulator as a fine, via the churned customer, to the depleted reservoir of trust, to the successor who inherits the deferred problem. Extraction is just the steady-state behaviour of an open loop, so its series is arithmetic at best and decaying at worst.
Re-coupling changes the topology. Once consequence returns to the actor the loop closes, and a closed loop with positive gain is, by definition, a compounding process: its output becomes its own input. But closing a loop is not sufficient. A closed loop on a commodity input is competed away at once, because every rival runs the same loop and the advantage mean-reverts to zero.
For the compounding to stay yours, the loop must run on a proprietary input rivals cannot acquire without dismantling their own business. That is counter-positioning, and it converts a temporary edge into a structural position.
This is what Alexander’s tenets are: not possessions but loops, each running on an input that is non-fungible, slow to build and impossible to buy.
Because no rival can tap the same flywheel, the gap widens every cycle, the signature of a structural position rather than a passing edge. By re-coupling onto un-copyable inputs, Alexander runs a unique self-improving system. The nonconformist is not merely the more humane operator. He is the better strategist.
The narrow gate
Set the tenets side by side and the pattern is evident and unmistakable:
* Unlimited liability re-couples action and consequence.
* “Perpetuate, don’t maximise” re-couples the goal and the system’s survival.
* Small-is-beautiful re-couples the owner’s comprehension and his responsibility.
* Relationships re-couple price and value.
* Good-bankers-and-good-citizens re-couples the firm and its society.
* Stewardship re-couples the present and the future.
Each is a node contemporary finance unplugged in pursuit of a better-looking quarter; and a system with its loops unplugged is exactly what blows up (remember 2008?) and hollows out its large companies in 15 years.
The status quo calls such a man a contrarian and treats it as a quirk, a penchant for swimming against the tide. Alexander Hoare is not swimming against the current for sport; he has noticed that the current runs over a waterfall.
His nonconformity is not a rejection of good economics but of an ergodic world that doesn’t exist. It is good economics for a non-ergodic world, run on the time average instead of the ensemble average, on the untruncated series instead of the truncated one with big early term, on the closed loop instead of the open one.
Culture eats strategy for breakfast, as the Drucker line he loves has it, because culture is the loop that keeps running when the strategy document is put back on its shelf.
“I see maximizing short term profits as the wide gate to failure,” he writes. The allusion is almost biblical, and deeply true.
The wide gate is wide because it is crowded; the drift carries you through it effortlessly, in busy company, and over the edge.
The narrow gate demands a toll: a liability you would rather not carry, a customer you would rather not refuse, a business you would rather not shrink, a fortune you would rather not decline to maximise. Almost no one pays it. Those who do are still standing in 1672, and in 2008, and, if the soil is tended, in 2372. That is the system gambit [https://www.youtube.com/watch?v=xFNp7gTcO_s].
Alexander Hoare has played it for forty years without ever calling it that, guided by faith and principles successful enough that the rest of the world would do well to see them a scripture for deep thought and reflection.
My new book The System Gambit [https://www.amazon.com/dp/B0GY8J23SK] has C. Hoare & Co. as a case study:
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit mavenmaverick.substack.com [https://mavenmaverick.substack.com?utm_medium=podcast&utm_campaign=CTA_1]
