20 August 2012

The Chairman of the Bank of China has “got” the message that seems to escape his colleagues in the West. He wrote an article in the China Daily about of the importance of culture in organisations and because of its key influence on economic, political and social stability, the necessity that the banking sector reestablishes a culture of integrity and is inspired to fulfill its responsibilities.

The article repeats much of what has been said about the finance sector. It refers to the collective misdeeds, broken ethical norms and greed often reported in relation to the exploits of Barclays, Citigroup, JP Morgan and indeed most in the sector. Unsurprisingly the Chairman sees the same cause as almost everyone other than bankers! It is the demise of business ethics;  “Values of an organisation are shaped by its corporate culture. …profit making activities must be legal and morally acceptable. Experience shows that misbehaviour in the banking sector often stems from the belief that only bonuses can reward people.  Remuneration structures often linked to short term performance have created incentives for dishonesty…. Leadership plays an important part in shaping the culture of a bank.  Clearly the tone at the top is a key factor influencing how a bank operates….qualified leaders motivate subordinates to work for the good of a bank not just for themselves…the nation’s top bankers must be accountable and of high integrity, no matter how intensified the competition becomes. ..”

In a further twist on Barclays ethical lapses,  the Commons Treasury select committee report on its inquiry into the Libor manipulation includes what is tantamount to an allegation of deceit about the actions of Barclays (now former) chief executive.  That then led a director of the bank to complain that the report references to evidence falling well short of  the standard that parliament expects, were unacceptable character assassination;  “it is one thing to attack a man’s judgement or his decisions, but quite another to attack his integrity”.  But what is the integrity of institutionalised misrepresentation as occurred with Libor?

Which perhaps confirms how perceptions differ between UK bankers and the chairman of the Bank of China.  In China corruption is real and the need to change seems to be appreciated.  In Britain, according to media commentary, banking standards were maintained by the power of the “governor’s eyebrow”. Allegedly prior to the creation of the Financial Services Authority, all it took was a raised eyebrow from the governor of the Bank of England, to put a stop to bad behaviour. The Select Committee seems to have found that the eyebrow may not have been as effective as the “pin striped old guard of the Square Mile” proclaim.

The observations of the Bank of China’s chair may have equal relevance to the public sector. The pursuit of efficiencies expected by governments encourages emulation of the private sector.  And too often that seems to be adoption of that sector’se least endearing characteristics!

Of course terms like accountability need meaning.  And how is that to be effected. If leaders are paid for short term performance, they may well be away from the position when chickens come home to roost.   That is why the House of Lords select committee on the constitution seems keen that former chief executives are examined as a matter of course by a select committee investigating any matters relating to their time in office.

The five Heads of the Civil Service who gave evidence were united in debunking the value of such a practice.  They recommended there be no change to the status quo, that the incumbent carries responsibility. Human nature is that senior leaders believe their house is in order when they hand over to a successor – any evolving fault rests with that successor.  An incumbent facing an imploding project will find cause in the mismanagement of predecessors.  The Constitution Committee seems unconvinced; current practice means accountability is avoided by those who were rewarded for short term gain and moved on.