What can the public sector learn from bankers?

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.



Can you bank on that?

5 November 2018

The New Zealand banking sector appears able to sigh with relief  – or at least draw a deep breath and wait for media attention to move on. The players have been told that a core area of their professional expertise – the governance of management risk – requires serious attention, and that they must markedly improve how they identify and manage unethical behaviour.  None of which is a surprise as polls rating the trustworthiness of bankers score them poorly, among taxi drivers, clergy and lawyers. But the Reserve Bank / Financial Markets Authority report published today, after more than 4000 hours of inquiry, struggles to rationalise the Government’s angst at the profits Australian banks have earned in New Zealand.

It has not uncovered the malfeasance and scale of self-interest being conceded ahead of the Australian Royal Commission into Banking etc Services reporting its findings.  The major players are the same in both markets but something in New Zealand seems to moderate exploitative practices hitherto viewed as acceptable by the leaders in these banks – in a sector once considered the epitome of trustworthiness. The most pejorative observation about the findings seems to be that it is “disgraceful” that only half of the banks had adopted FMA conduct and risk framework guidelines issued 21 months ago.

Business depends on bankers. It seems axiomatic that efficient and effective business depends on good bankers. And presumably, the ease of doing business is shaped by supportive banking services.

Last week the World Bank released its annual Ease of Doing Business survey results. Of the 120 economies assessed, New Zealand, overall, is the place where it is easiest to do business, ahead of Singapore and Denmark. New Zealand has always rated in the top decile in this survey. What is notable about the characteristics evaluated is that business acumen does not dominate. Many determinants are governance skills – the functionality of State servants who develop, implement and improve a regulatory climate sympathetic to business. But there is also an interface with banking capacity, with Getting Credit, Trading Across Borders, Resolving Insolvency. New Zealand is the easiest place for a business to get credit! And a number of the relevant factors are incorporated in the measures gathered by the World Justice Project to compile the Rule of Law Index – in which New Zealand again this year was placed 7th of the 113 surveyed jurisdictions.

The longer this post gets, the more it echoes past entries. There are no fireworks, despite the date.








Banking on trustworthiness

15 April 2013

Integrity is expected of bankers.  The experience of the financial crisis is that many have not met expectations.  Britain’s banking regulator has imposed a fit and proper person requirement for some banking functions. There is a suggestion that the regulator may not be modeling the standards it sets for the sector.

It appears that most who sit the test, can meet the standard – they have the competence, financial soundness and integrity required.  Last year 24,319 candidates qualified – four failed.  Which suggests it may not be too much of a challenge.  The regulator will not specify what the standards are but indicated that candidates thought unlikely to pass are encouraged to withdraw.

Critics are not impressed.  An Opposition MP on the Treasury Select Committee is concerned about the United Kingdom’s “…cultural problem that has brought banking to its knees and cost the taxpayers a fortune and these people continue as if it’s business as usual. It’s about time that regulators got real about the problems in banking and I see no signs of that happening…”

The Edelman international survey this year placed bankers near the bottom of its trust barometer of occupations at 49%, only financial services scored less.  The picture is worse in Britain where the Which survey finding is that 71% of respondents believe that there has been no improvement in the general banking culture.  New Zealanders however appear to have substantially more confidence in bankers.  The UMR Mood of the Nation ranking of occupations indicates that 51% have a great deal of trust in Banks, more than the Courts at 47%, and Public Service at 38%.  New Zealanders have the least trust in the Church and Organised religion and by a substantial margin, the highest numbers saying they have only ‘some or very little confidence’ in the Church.

Confidence levels presumably are much worse among Cypriots where despite the Eurozone Deposit Guarantee Scheme protecting deposits up to €100,000, banks in Cyprus will deduct a levy from all deposits. And sums over that may face deductions of up to 40%.

Integrity involves doing what you say you will do, and telling those who depend on your word, when you are not able to do what you say.  That’s why people with integrity can be trusted. The problem with banks was that they said they were competent, reliable, honest  and ethical. But they didn’t tell their customers when they acted differently.

http://umr.co.nz/sites/umr/files/umr_mood_of_the_nation_2013_online_0.pdf  page 28