I had coffee with a former investment banking colleague last week. She complained to me that she had lost a lucrative deal because by the time she had got the compliance department to agree to the deal another bank had beaten her to the sale. I thought about this discussion when I read the CIPD’s excellent submission to the Parliamentary Commission on Banking Standards.
The CIPD submission makes a cogent argument that culture change is a necessity and standards of behaviour are key in tacking the current perceived malaise in banking across the globe. The problem from my viewpoint is that the nature of financial systems makes culture change in banking almost impossible. The reality of what happens “on the ground” makes change very difficult and a very long term project.
The arguments supporting this thesis are first that the entire financial services structure is built on the profit imperative. Investors giving money to fund managers expect above average returns. The fund managers and shareholders expect above average returns to reward their investment. That puts pressure on Boards to make above average profit; this pressure is then passed down the line to the coal face where revenue earning staff are under great pressure to produce profits both to keep their jobs and to make a bonus. It is difficult to see a situation where fund managers and shareholders say “don’t make me so much money” the obvious result of reducing risk.
The second argument, which is also reflected in the CIPD submission, is the issue of the labour market. High earning revenue makers such as traders as not a common species. The best beasts in the financial services jungle require high levels of self-belief, education, skills and intuition. Those with this skill set are far ahead of the herd in achievement of revenue generation and thus ruthlessly hunted by banks seeking to boost profits. The way this hunting is carried out is by financial incentive supported by a “self-reinforcing monolithic working culture”. Status is measured first by employer and second by earnings. So working for Goldman Sacs is seen as being of higher status than working for UBS for example. But money is the big differentiator; – bigger bonuses = higher status.
Proof for the above assertions can be seen just by reading the newspapers. Despite years of the banking crisis we are almost weekly hit by stories of alleged wrongdoing from the top of organisations – the recent disclosures around alleged LIBOR fixing; to the alleged wrongdoings of individual traders. It could be argued that due to the factors above, nothing very much has really changed in the culture and behaviours of those who lead, manage and work at the coal face of our financial services.
The CIPD submission to the Banking Standards Inquiry is an excellent document that highlights the key issues. The unfortunate truth is that diagnosing the ills is unlikely to lead to any early cure. An impression not aided by the body holding the inquiry being portrayed by the media as lacking the very culture and behaviour that it seeks to impose (if that were possible) on the banking sector. Pots and kettles anyone?