2 July 2012

Britain’s biggest banks are being described as “…greedy, shoddy, deceitful, and a massive cesspit…”  This follows the acknowledgment last week that Libor banks have been rigging interest rates. The Libor affects more than NZ$750 trillion worth of financial contracts.

Barclays agreed to pay £291m in penalties to US and UK regulators, hoping their problems may go away. The UK Financial Services Authority and the US Commodities Futures Trading Commission in a coordinated action, have about 20 other banks under investigation.

The British Prime Minister urged regulators to use all the powers at their disposal. “This is a scandal. It is extremely serious. ..How did this happen? Who was responsible? Who’s going to be held accountable for it?”

Rigging the Libor confirms the suspicion of many that senior bankers are not merely intellectually acute entrepreneurs but are, in effect, institutionalising corrupt practices.  Contempt is raining on them from high places.  The Chancellor of the Exchequer has described it as “…systematic greed at the expense of financial integrity and stability”.  The Governor of the Bank of England criticised “…excessive levels of compensation, shoddy treatment of customers, and a deceitful manipulation”. The Secretary of State for Business has referred to “…a massive cesspit”.

The FSA found that there has been serious, widespread, and extended rigging of Libor interest rates over a number of years, with traders at the banks co-ordinating to make false bids as daily  interest rates were set.  This criminal action may well lead to serious charges against senior bankers.  But of course no bankers have yet been imprisoned for behaviour that contributed to the global financial crisis – a point that Prof Niall Ferguson made in his Reith Lecture last week..

All of which brings business ethics into question.  How genuine is the commitment trumpeted by boards and their chief executives?

Barclays code of conduct states that “.best practice governance, controls and compliance are essential … We must therefore act with the highest standards of integrity and honesty in all our operations, to ensure that customers can entrust their business to us with confidence…. and are committed to enforcing best practice…. Barclays has an internal policy in place to ensure our employees conduct themselves with the highest standards…”.

The Lloyds TSB Group Code of Business Conduct commits to setting “…an example in the conduct of our business. We demand honesty and integrity in everything we do, and will not do business if our standards are endangered.  We greatly value our good reputation. High ethical standards are of crucial importance to us, and… our core values which apply equally to all members of the Group…”

And at HSBC, “  Honesty and integrity in our dealings with customers are of paramount importance and make good business sense – they are prerequisites for a successful and sustained relationship. ..HSBC has long espoused high ethical standards in the conduct of its business. Honesty, integrity and a strong sense of responsibility have been our hallmarks… So ingrained are these standards that for much of our history it was considered unnecessary to articulate them. However, the Group’s international expansion and higher profile around the world has coincided with increasing public scrutiny of multinational companies. We have therefore decided to make explicit what was previously implicit…. and to provide additional evidence of our adherence to internationally accepted standards of conduct. ..”

All of which may be seen to give weight to the view that business is your opportunity to create wealth, corrupt practice is the opportunism of others.  What was it Samuel Johnson once said about patriotism and scoundrels….?