Opinion: as recent comments by KBC boss Johan Thijs show, banks are still displaying the gung-ho attitudes thought to be relics of the past
I am standing in a lecture hall and talking with students about business ethics. We are discussing how ethical judgements can be weakened when business leaders are busy chasing tough financial targets. We talk about recent scandals such as Boeing's 737 Max crashes and the Wells Fargo loans debacle.
"And of course", I say, "we all remember the financial crisis!"
I look at their faces. They don’t. They were eight years of age when that happened.
Memory of the crisis is fading. The new generation of bank staff were children when it occured so it is up to senior executives, who remember its effects, to keep its lessons alive in their banks. It is especially up to the most influential and powerful senior executive: the CEO.
This is why KBC’s Group CEO Johan Thijs’s comments last week were so disturbing. He spoke flippantly about feeling annoyed at the inquiry into the tracker mortgage controversy, an inquiry that seeks justice for ordinary people. The financial crisis taught us that when banks ignore the rules, customers and society suffer. But if its memory does not live on in CEOs like Thijs, we are doomed to repeat.
From RTÉ 1's Nine News, KBC CEO calls on the Central Bank to move on from "annoying" tracker probe
Since the financial crisis, banking regulation has increased in certain areas, but ethics remains a big issue in finance. Research shows one in five financial services personnel in the UK and US either witness or know first-hand about wrongdoing in their workplace. Even worse, one in four report that they would commit a crime (insider trading) if they believed they would not be detected. According to Transparency International Ireland in 2017, the Irish banking sector appeared in the top three most complained-about sectors for the first time ever.
For my book on financial services whistleblowing, I interviewed HBOS/ Halifax's senior Group Regulatory Risk executive Paul Moore. He described the intense pressure his staff were under to sell loans, pre-crisis. The Halifax was expanding rapidly in the retail banking market and Moore described "a huge focus on targets and a culture of fear if you didn’t [meet them]… Put these together and you have a very heady mix. The entire organization was focused on selling, selling, selling. But not on risk management."
This target-driven culture encouraged people in bank branches to bypass ethics. Crucially, these targets were coming from the top, from a CEO focused on the singular goal of growing his bank.
From CNN Business, the rise and fall of Angelo Mozilo and Countrywide Financial
At Countrywide - later Bank of America - a similar targets-driven culture was in place. Mortgages were being sold en masse to people who could not afford to repay. Again, the imperative was coming from the top, from another CEO with an obsession for growth. Angelo Mozilo wanted to gain almost a third of the entire US home loan market by 2008.
It was an ostentatious aim and his growth strategy was well-known across the organisation. One employee changed his license plates to reflect it; they read "Fund 'Em". Mozilo’s motto sent a clear message to any staff that might be wavering over a lending decision. Just like at the Halifax, Countrywide’s pay and bonuses were linked to meeting outlandish targets. Just like at the Halifax, the bank ended up costing taxpayers dearly when these loans began to fail.
But surely the lessons of the crisis have stayed with us? We laugh at the excesses of CEOs like Mozilo, and Ireland’s Michael Fingleton. Their gung-ho attitudes are assumed to be relics of the past. We now have well-regulated banks. We are safe. Or are we? Yes and no, according to the Group of 30. Comprised of senior leaders and central bankers worldwide, the group advises on pressing issues in the finance sector. We have seen extensive post-crisis regulatory reform, they note. But the extreme damage caused by the last crisis is being forgotten. And this is a problem.
From RTÉ News, David Murphy talks to former Nationwide boss Michael Fingleton at Dublin Airport
Senior leaders could help stop this. Employees look up to CEOs. They expect them to speak out about important issues. CEOs have power to influence the culture across the organisation through what they say but also, crucially through what they do. When Thijs did apologise for his remarks, he talked about KBC’s full co-operation with the tracker inquiry investigations, but this co-operation has, in fact, been lacking.
Richard Bowen remembers this kind of thing well. He was a business chief underwriter at Citigroup in the run-up to the 2008 crisis. He recalls how Citi responded to successive scandals with exciting new ethics initiative each time. But expensive ethics programmes and lengthy documents - one at Citigroup was 60 pages long - will not work by themselves. Leaders need to embody the new approach.
According to Bowen, "we can 'talk' culture all day long, mandate it, instill fear about firing, but if leadership is not an example and role model for ethical behavior… well it’s not going to happen!" After discovering billions of dollars of defective mortgages being sold to securitization investors, Bowen tried to speak up to his bosses and to the authorities. He was ignored. He later gave evidence to the US government’s FCIC financial inquiry.
The students I teach this semester will hopefully be getting full-time jobs next year. They will join accounting firms, public sector organisations, NGOs and banks. Wherever they end up, they will naturally take cues from senior figures, including CEOs, about how to judge ethical dilemmas and then how to behave. I hope they will learn to see their organisation’s responsibility to the public as a value, rather than an annoyance.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ