Integrity must be the new message from the top, says Sants

October 13, 2010

At the risk of infuriating Andrew Marr, I intend to commit my thoughts to a blog on the subject of corporate ethics. No, this is not my rumination on a firm with headquarters in Chelmsford, but on the thorny issue of business integrity.

Gekko says that greed is good and now it's legal

Gordon Gekko is back in British filmhouses in Wall Street 2: Money Never Sleeps with Michael Douglas reprising the role of the unprincipled slash and burn moneyman.

In the new film we see an unrepentant Gekko in the days of boom before the recent banking bust celebrating the fact that “greed is good and now it seems it’s legal”. According to the film’s director Oliver Stone, individuals like Gekko have passed their date stamp, sharp suited dinosaurs who have been replaced by the major banks and the hedge funds: “They are the big players now…the money’s too big.”

With impeccable timing, in the same week of the film’s UK release, Hector Sants, chief executive of the Financial Services Authority, addressed the issue of corporate culture and ethics in a Mansion House conference speech, and how in the banking industry a company’s value system was critical in shaping the behaviours and judgments of its people.

Management, he said, had a critical role in determining the culture of an organisation and setting the direction and tone of a company so that employees made the right decisions. He then posed some questions that should be asked about ones firm:

  • Do management model good behaviour, i.e. make their values ‘live’?
  • Do management articulate a clearly understandable strategy?
  • Do management offer guidance and training to assist in good decision-making – for example, on ensuring the fair treatment of customers and effective risk management?
  • Do management incentivise good behaviour and deter poor behaviour and how?
  • Do management encourage the required diversity to facilitate challenge to ‘group-think’?
  • Do management articulate their vision of the right culture? (Linking the brand of the institution and its culture)

These questions should not be asked as part of a box-ticking exercise; the company culture must “ring true and be consistent with what the firm does”.

This is not always the case, he said. Some of the causes of the recent crisis were rooted in the behaviours of firms and organisational cultures. And, worryingly, some senior managers had evidently failed to learn the lessons and were repeating their mistakes as if in defiance of Einstein’s definition of insanity (doing the same thing again and again in expectation of a different result).

Companies that fail to act with integrity and to ensure good behaviour is part of the lifeblood of their organisation face regulation, he warned. He could have added that they might also find themselves the subject of Mr Stone’s next cinematic opus.

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Hare’s trigger fails to fire on bankers

January 26, 2010

A visit to the theatre last night to see David Hare’s The Power of Yes which examines the causes and exposes the villains of the financial crisis was well timed; banker bashing is in full swing.

Earlier in the day the city minister Lord Myners articulated public outrage at the banks’ failure to act with due penitence after receiving state aid and promised regulatory reform to prevent a similar collapse happening again. Meanwhile, President Obama is squaring up with the titans of Wall Street who have trousered millions in bonuses.

courtesy of Metro newspaper

What was really in those boxes?

The play opens with the narrator – an actor who takes on the role of Author – explaining: “This is not a play. It is a story.” And the story is compelling. The audience learns about the Nobel prize-winning economist who created a formula to remove risk from the market in ‘options’ and the growth of the financial services in the UK to the point where it accounted for 9 per cent of GDP. We learn more about sub-prime, what was really in those boxes being carried by Lehman Brothers’ staff from their offices on the day the firm went bust and how Fred ‘the Shred’ Goodwin was groomed to be nice for a media appearance.

Drawing on interviews from important players in the banking industry who saw the events unwind first hand, the play moves briskly and employing an Author figure to ask the questions the public would want asked is a clever device. The play attempts to provide some answers. The Author as Hare tell us that the current crisis represents the death of an idea and the invalidity of the much-spouted wisdom that capitalism is self-healing and works for the benefit of all members of society. The pay-off lines are left to the George Soros character who says that while the bankers reap the benefits of capitalism they rarely pay the price of failure.

But Hare, perhaps surprisingly for a left-leaning polemicist, seems reluctant to pull the trigger on capitalism. He hesitates to come out and declare greed is not good, instead saying that it is fallible and that it got it badly wrong this time. There is only one short section of the play which offers an insight into how ordinary people are struggling with debt caused by the crisis. As a result, I am afraid the play lacks real emotional punch. I left the theatre with answers but not the anger I expected to come away with.