Bank­ing course on how to do the right thing is a wel­come step

Irish Independent - Business Week - - APPOINTMENTS -

“I do not think you can trust bankers to con­trol them­selves. They are like heroin ad­dicts.” – Char­lie Munger, vice chair­man of Berk­shire Hath­away

“Ir­ra­tional lenders come and go – mostly they go!” – John Stumpf, chair­man and CEO of Wells Fargo

The first quote above sums up the feel­ings that many may have about the stereo­typ­i­cal “un­trust­wor­thy” banker who doesn’t have the cus­tomers’ best in­ter­est at heart.

The sec­ond car­ries the warn­ing about the per­ils of tak­ing too many risks in bank­ing.

Right now, there is a sig­nif­i­cant sea change tak­ing place in how banks and bankers are reg­u­lated. The fo­cus for reg­u­la­tors and banks them­selves is on chang­ing cul­ture.

The first wave of reg­u­la­tory change came af­ter the €64bn bank­ing crash which was char­ac­terised by foot-to-the-floor lend­ing and risk-tak­ing more than it was about break­ing the law.

Nat­u­rally leg­is­la­tors, reg­u­la­tors and tax­pay­ers want to make sure that isn’t al­lowed to hap­pen again.

The sec­ond wave has come more re­cently from the €1bn tracker mort­gage scan­dal where the in­ter­ests of cus­tomers were not put first. This one was about the cul­ture of banks. Now there is a big push to try and change that cul­ture. The Cen­tral Bank has re­sponded to the first is­sue by en­sur­ing greater scru­tiny of bal­ance sheets, lend­ing prac­tices and set­ting bound­aries on prac­tices like mort­gage lend­ing.

It has also taken a more hands-on ap­proach to en­sur­ing suit­ably qual­i­fied peo­ple are man­ag­ing our banks and also that board di­rec­tors know what they are do­ing.

The reg­u­la­tor is re­spond­ing to the tracker is­sue by in­tro­duc­ing new rules around in­di­vid­ual ac­count­abil­ity among bankers for the de­ci­sions that they make, as well as in­tro­duc­ing very spe­cific codes of con­duct deal­ing with be­hav­iour and cul­ture. The in­dus­try it­self is re­spond­ing by set­ting up a new Bank­ing Cul­ture Board. And now the In­sti­tute of Bank­ing is run­ning cour­ses in con­junc­tion with UCD, on lead­ing cul­tural change and eth­i­cal be­hav­iour in fi­nan­cial ser­vices.

Can you teach ethics in a course to a bank chief ex­ec­u­tive? Can you change the cul­ture of an in­dus­try by at­tend­ing a course?

Mary O’Dea, CEO of the In­sti­tute of Bank­ing, be­lieves this kind of ed­u­ca­tion can form part of the so­lu­tion, but on its own, won’t achieve all of those goals.

Ju­nior staff in banks may feel let down by their lead­ers in re­cent years, as they had to take a lot of the front-line flak from cus­tomers. One might think that only the top ex­ec­u­tives, who set the tone in an or­gan­i­sa­tion, need to learn about these things. But the cour­ses are geared to­wards staff at all lev­els and will ex­am­ine things like group­think, group dy­nam­ics and how de­ci­sions get made. The in­sti­tute has come up with two cour­ses.

One is a cer­tifi­cate course aimed at more front-line staff deal­ing with cus­tomers and the other is a diploma which should be at­trac­tive to mid­dle and se­nior man­age­ment.

The cour­ses will deal with is­sues like eth­i­cal prac­tices and con­flicts of in­ter­est, and will in­stil an un­der­stand­ing of the im­por­tance of cul­ture in en­sur­ing good cus­tomer out­comes.

They will also deal with ethics and what it means to be eth­i­cal in fi­nan­cial ser­vices, and the obli­ga­tions fi­nan­cial ser­vices com­pa­nies have to cus­tomers.

The brochures re­fer to case stud­ies from the in­dus­try and how they will ex­am­ine is­sues like un­der­stand­ing or­gan­i­sa­tional cul­ture and mind­sets, as well as in­still­ing a cul­ture of em­pow­er­ment and ac­count­abil­ity.

It all sounds like good stuff but will it work in chang­ing banks’ cul­ture? The im­pact of the cour­ses stands or falls on how the banks re­spond to the con­tent. So you can teach any num­ber of bankers about eth­i­cal be­hav­iour, their obli­ga­tions to cus­tomers and the im­por­tance of di­ver­sity of opin­ions, but how does the or­gan­i­sa­tion re­spond when some­body sees some­thing go­ing on that doesn’t meet those stan­dards? Ms O’Dea says the abil­ity to speak up goes right to the heart of an or­gan­i­sa­tion and there is no point teach­ing these skills un­less there is real lead­er­ship when it comes to how you re­spond to staff when they speak up about some­thing. There is an­other pos­i­tive point to the cour­ses. Just get­ting bank staff and man­age­ment to spend time study­ing, read­ing and talk­ing about these is­sues, will surely prompt some of them to raise ques­tions when they see be­hav­iour that falls short of these stan­dards. But the in­dus­try will have its work cut out. In 2010, Peter Ny­berg was asked to con­duct an in­ves­ti­ga­tion into the bank­ing crash. He blamed group-think, a lack of ques­tion­ing within banks and sheer reck­less­ness in lend­ing poli­cies.

He con­cluded that among the litany of banker fail­ures and mis­takes was that banks had “for­got­ten the very na­ture of credit”. He went on to say: “It ap­pears now, with hind­sight, to be al­most un­be­liev­able that in­tel­li­gent pro­fes­sion­als in the bank­ing sec­tor ap­pear not to have been aware of the size of the risks they were tak­ing.”

Fast for­ward nine years af­ter the crash and the Cen­tral Bank has had to con­duct a re­port into the tracker mort­gage scan­dal. It said it was “clear that con­sumer-fo­cused cul­tures in the banks re­main un­der-de­vel­oped and that banks need to over­come ob­struc­tive pat­terns of be­hav­iour in or­der to tran­si­tion to ma­tu­rity”.

There is some­thing in the cul­ture of bank­ing, not just in Ire­land, that makes it very dif­fi­cult to bring about deep last­ing change from within. It often has to be forced on banks from the out­side.

Now the in­dus­try is at least tak­ing its own steps to bring about some change. This isn’t an Ir­ish bank­ing prob­lem. It goes a lot fur­ther. You only have to look at the sub-prime mort­gage scan­dal in the US, the scan­dal around Wells Fargo bank or the for­eign ex­change and Libor scams in Lon­don. In some ways, they were a lot worse than any­thing we have seen in Ire­land.

The Bri­tish Bank­ing Stan­dards Board did a sur­vey of 28,000 bank staff across 22 lenders last year. It found that one in eight bankers said it is dif­fi­cult to progress

Set­ting stan­dards:

The Cen­tral Bank has taken a more hands-on ap­proach to en­sur­ing suit­ably qual­i­fied peo­ple are man­ag­ing our banks and also that board di­rec­tors know what they are do­ing their ca­reers with­out “flex­ing their eth­i­cal stan­dards”. More than one-third wor­ried about the neg­a­tive con­se­quences of voic­ing any con­cerns. Six out of ten agreed that “our in­ter­nal pro­cesses and prac­tices are a bar­rier to our con­tin­u­ous im­prove­ment” and one in eight had seen un­eth­i­cal be­hav­iour be­ing re­warded. These are not en­cour­ag­ing sta­tis­tics. An­other sur­vey con­ducted by the ‘Guardian’ news­pa­per saw 200 bankers in the City of Lon­don in­ter­viewed. It found the lan­guage used in the pro­fes­sion con­sis­tently side-stepped the pos­si­bil­ity of eth­i­cal dis­cus­sion.

The banks’ use of tax loop­holes to help clients cut tax bills was de­scribed as ‘tax op­ti­mi­sa­tion’.

Lawyers and reg­u­la­tors who went along eas­ily with bank pro­pos­als were de­scribed as ‘busi­ness friendly’. Cases of proven fraud were re­ferred to as ‘mis-sell­ing’.

On ethics, bankers were found to be amoral rather than im­moral. They re­ally did not want to break any rules and were afraid to do so. But they felt that as long as some­thing was com­pli­ant with reg­u­la­tions, then it didn’t mat­ter.

Be­ing amoral on some is­sues means that terms like good or bad do not play a part in the de­ci­sion­mak­ing process.

When it comes to or­gan­i­sa­tional cul­ture and ethics, most banks in the UK have a form of in-house train­ing. Mary O’Dea says the new cour­ses here in Ire­land are dif­fer­ent and go fur­ther be­cause they are ex­ter­nally ac­cred­ited.

Non-ex­ec­u­tive bank board di­rec­tors in Ire­land have had cour­ses avail­able to them since 2012 – an­other fol­low-on from the crash. Trust in bank­ing has been hugely dam­aged by the events of re­cent years. Any­thing the in­dus­try can do to re­build that trust and be­gin the long road to­wards cul­tural change has to be wel­comed.

Ms O’Dea said cul­ture is be­ing looked at in banks par­tially be­cause we don’t know what the next ma­jor fi­nan­cial cri­sis might be. She wants the cour­ses to en­cour­age a cul­ture where peo­ple will feel they can speak out rather than sit back and say: “This is the way we do things around here.”

The In­sti­tute of Bank­ing cour­ses be­gin in Fe­bru­ary.

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