Confidence in financial services industry very low

Much of the blame for the 2008 global financial crisis has been laid at the door of the financial services industry.

A direct consequence was that banks and financial institutions were left with a legacy of eroded public trust.

The Occupy movement is a visible reflection of this lack of trust. Starting with Occupy Wall Street in September 2011, protests against social and economic inequality, greed and corruption have occurred in many parts of the world – particularly against practices within the financial services sector.

This legacy should have made ethics and building stakeholder trust important business priorities, all the more so because ethics is especially relevant for businesses that are trust-based, such as banks and financial services companies.

Their services and advice require a higher level of client trust both as regards their expertise and their integrity than, for example the retail industry.

Three international scandals over the period of just a few months this year paint a poor picture of the industry’s ethics and culture.

In the UK, Barclays Plc has been fined £290 million (R3.4 billion) for rigging lending rates between at least four other banks. George Osborne, the UK Chancellor, said it was a “shocking indictment” of the banking culture.

An ethical culture was also not what was highlighted at Goldman Sachs when former executive, Greg Smith, resigned in March.

His description of the firm as “morally bankrupt” and having a “toxic culture” reflects a self-serving culture rather than one focused on building stakeholder trust.

In May JP Morgan Chase announced losses of $2bn (R16.5bn) arising from a bet on credit derivatives, reflecting poor risk management practices and controls. Recent reports speculate this could increase to as much as $9bn (R74bn).

Adding to these incidents, a Gallup poll in the US in late 2011 assessed perceptions of honesty and ethics in different professions. Nurses ranked the highest with a score of 84 percent. Bankers only scored 25 percent, and stockbrokers were viewed even worse, scoring a mere 12 percent.

Therefore, when business success depends on a high level of trust, it is imperative to build and maintain an ethical culture and stakeholder confidence.

The following are important steps in the right direction:

  • Leadership’s commitment to ethics is a primary factor to create an ethical culture. Their behaviour demonstrates to their followers what is and isn’t acceptable, thereby shaping the company’s culture and reinforcing or undermining the company’s values.
  • The goals and strategies the company’s leadership pursue are also relevant. When, for example, they promote profits above all else – as Smith claimed Goldman Sachs did – it results in a culture which undermines trust.
  • Three key focus areas identified by Vanessa Hall’s research also contribute to building trust: managing people’s expectations of you, your business and your products and services; meeting people’s needs and keeping your promises.

Creating an ethical culture is not a perfect panacea which will prevent all future misconduct. But for those who get this right – and are seen as ethical and trustworthy – it can deliver significantly improved stakeholder relationships and a more sustainable foundation for doing business.

By Cynthia Schoeman, MD, Ethics Monitoring & Management Services (Pty) Ltd
Publishing in The Star & Pretoria News Workplace, 11 July 2012
Posted on IOL, 12 July 2012