Are bankers expected to have higher standards of integrity than the military, the church and the civil service?
Jane Fuller, co-director of the CSFI, spoke in support of the above motion at a debate on ethics and integrity. The debate was organised by the Chartered Institute for Securities and Investment (CISI) and took place on September 23, 2015, at the Mansion House in London. Below is a transcript of her speech.
The short answer is yes. My argument is that we demand high standards of integrity from banks, as we do from these three worthy institutions. But only banks have to combine behaving with integrity with a commercial operation and obligations to investors. All the others have clear public policy or spiritual goals and don’t have to worry about either earning money, or taking responsibility for other people’s money.
We clearly want bankers to have higher standards of integrity than they exhibited in the recent past. More than that, we want these standards to bear comparison not just with other industries but with public service bodies. When I was researching the introduction to the latest CISI Integrity at Work guide, I found that leaders of the industry and other experts felt that banks had a long way to go before people would believe they were genuinely reformed. The industry’s reputation was seen to be still bumping along the bottom.
We expect banks to have a service culture, which means putting the customer first. While cash bonuses for hitting sales targets have rightly been withdrawn, it takes a long time to alter the perception among staff that what management really wants is simply that they sell more of the stuff. Yet, the lesson that sales now might end up in losses later – witness the £27bn bill for PPI mis-selling – has started to sink in. So has something that all honest businesses know: you can only build sustainable profits by keeping customers satisfied. In the end, acting with integrity pays off by building trust and customer loyalty.
Since bankers have to act with integrity even when they are surrounded by money, incentives matter – and these have been reformed to encourage staff to do the right thing by both customers and shareholders. Bonuses are capped, deferred, paid partly in shares and subject to clawback. Gates, or hurdles, have been established that disqualify staff from bonuses if they do not demonstrate “integrity and values” in their treatment of customers and colleagues. But concern remains that some bankers are still paid too much in absolute terms – and that this reflects a level of greed that may get in the way of doing the right thing. Again, it’s a work in progress that reflects a call for standards of integrity that are right up there with bodies that have a public interest role.
There’s the rub: the public sector obviously has a public interest role; but to what extent can any business be expected to operate with the same priorities? Actually, we ask them to do so all the time. Utilities grapple with the same question: the public needs water, gas, electricity, communication networks. Banks fall into the same category because they provide essential services – payments, a safe place for savings, credit, professional advice – to both people and businesses. In short, they fuel the economy.
When I asked those industry leaders whether banks felt they were an instrument of public policy, they provided some telling examples: the provision of basic bank accounts to customers who will never be profitable; political pressure to lend to small business and to first-time home-buyers. These customers are all good people, but the loans to them may turn out to be bad. Banks may also be an instrument of law enforcement, for instance, through their obligation to look out for money-laundering.
And while the taxpayer bailed some of them out in the crisis, considerable amounts have been recouped. Indeed, with $300bn having been paid by banks in the past five years, in fines and compensation for wrong-doing, some suggest they are now being seen by public authorities as an easy source of funding.
The bottom line is that we expect banks to be engines of the economy and part of the social fabric of the community, which amounts to acting in the public interest. I believe that it is not only possible to do this and make a profit but that the restoration of trust in the industry will also be good for business.
So let’s apply all this to the comparisons called for in the motion for this debate: with the military, the church and the civil service.
In some ways the military has the same problem as the banking industry: its actions can lead to bad outcomes. So you have to look at the intent at the time and that’s where integrity comes in: both bankers and soldiers are allowed to make honest mistakes. But I would argue that bankers are more likely to suffer from the retrofitting of higher – or different – standards than those that prevailed at the time, and they are more likely to have to pay up huge amounts in compensation.
The church looks after our spiritual wellbeing – we don’t ask bankers to do that. But most of us think that our material wellbeing is just as important. Yet, like the congregation of a church, bank customers often know less than those ministering to their needs. The many penalties for mis-selling imposed on banks over the years have shown that caveat emptor no longer applies, at least in retail banking. In these circumstances integrity is essential to ensure that the innocent customer is not taken for a ride. Most importantly, trust will only be rebuilt in the industry if it is seen to be looking after its flock.
The civil service is professional, efficient and has the concept of service at its core. But civil servants only have one master – the government. This makes life a lot easier than it is for bankers, whose masters are their customers, their shareholders, their regulators and the government. The message here is not just one of integrity but of the broader need for professionalism. Bankers should welcome all the moves to restore a professional approach in what is a diverse industry. Bodies like the CISI never forgot that. Let’s hope the efforts of the Banking Standards Board and the Chartered Banker: Professional Standards Board will spread high standards of conduct more widely.
To sum up: we expect bankers to act with military precision when it comes to guarding and moving our money – and with the military’s integrity in taking risks that might backfire. They must act with the moral rectitude of the church when dealing with innocent, fallible customers; and with the professionalism – and that includes integrity – of the civil service at all levels of a complex organisation.
They must do all this despite the temptations that arise from being in the money business. And in addition we ask them to make a profit, provide shareholders with decent returns; maintain a strong balance sheet; and pay billions in tax into the public coffers. Would a priest or a civil servant even understand some of these imperatives?
So, yes, the integrity bar is set high and bankers need to change more to convince us that they can clear it. But by comparing them with public service bodies, which do not have commercial – or prudential – goals, we demonstrate not only that we demand the same high standards of integrity but that they must “do the right thing” in much more challenging circumstances.