Bob Diamond provided a very visible focus for the anger against bankers that has been building up over the past five years. His resignation from Barclays is unlikely to change much, though, because the abuses which took place at his bank are endemic across the whole sector.
Yes, but how possible is it for individual CEOs to affect corporate culture? What tools have they got? How long would it take?
Could it be that bankers, regardless of their CEO, are predisposed to act badly because of the abundance effect?:
What power do CEOs have to counteract this?
The standard response from Organisation Development, Change Management and HR practitioners would probably be that leaders set the tone of an organisation and that, by their behaviour and attitudes, they reinforce (or sometimes change) the corporate culture.
That’s true up to a point but industries have cultures too. This is something I have often wondered about over the years. It’s easy to see how company cultures become established, especially when shaped by powerful leaders but what about whole industries? Even without a centralised leadership, industries develop standard practices, some of which look very odd to the outside world. As Edgar Schein says, culture is the result of unspoken shared assumptions and beliefs. Often, these assumptions are shared across a whole industry but only become obvious if they conflict with those outsiders.
Why, for example, do private gyms all have joining fees? Other membership-based service providers don’t. Who decided that was going to be the norm? Even where an industry has a large number of companies, like broadband for example, their standards and ways of working are remarkably similar. It took several attempts at regulation to end some of the less customer-friendly ones.
There is probably a PhD in there for someone to research how cross-company industry norms are established and maintained. There can be little doubt, though, that, as Chris says, the cultural norms in the banking industry are very strong and that the assumptions that underpin them are ever more at odds with those of the rest of the population.
He’s also right about the effects huge amounts of money have on the culture. It is difficult enough to go against group norms at the best of times but when doing so means you might miss out on massive earnings it requires a will of iron. If all your mates are coining it, you’d be mad not to.
It’s hardly surprising, therefore, that Libor rigging has turned out to be an industry-wide problem, or that many within the industry can’t see what all the fuss is about. While politicians and journalists fumed, analysts shrugged and former insiders said that it had been going on for years. According to one trader interviewed by the Telegraph, “everyone knew” and “everyone was doing it”. The practice was regarded as so normal that some Barclays staff thought they had at least tacit approval from the Bank of England.
As in 2008, there is a major clash of assumptions between those who work in investment banking and just about everyone else. What most outsiders assume to be bad behaviour is just workaday stuff in some corners of the banking industry. Among the wider population, attitudes are somewhere between apoplectic outrage and weary “here we go again” fatalism. Those on the inside, meanwhile, can’t really see what all the fuss is about.
The few who still defend Bob Diamond and other bank bosses have a point though. This culture is so deeply ingrained that individual CEOs will find it difficult to change and, even if they are successful, it will take time. To an extent, there has always been a do-whatever-it-takes-to-make-money culture in the City and it’s not going to change overnight. (This exchange from Yes Minister was written some years before the Big Bang deregulation but it doesn’t look out-of-place today.)
The trouble is, banks are so much a part of the country’s infrastructure that their failure, or even just their poor judgement, can have catastrophic effects. People can’t and won’t wait for gradual change. They want something done quickly. The Libor scandal has only stoked the anger. As both Alex Marsh and Ian Fraser said, this could be banking’s ‘Milly Dowler moment’ – the point at which even those who were formerly ambivalent get angry with the banks in the way that they did with the Murdoch press.
Yet, given the City’s deep-rooted culture, how can it be forced to change? Only by imposing terrifying punishments, says Chris:
We could learn from pre-modern states. They imposed brutal punishments upon wrong-doers, in part because they needed to terrorize their subjects into submission simply because they had no other means of controlling them. Similarly, if shareholders or regulators cannot control bankers – and it looks like they can’t, draconian punishments for wrongdoing are needed to keep them in line. As Voltaire nearly said, “it is wise to kill a banker from time to time to encourage the others.”
Now Chris wasn’t actually advocating dark-age style amputation, blinding and castration for bankers (at least, I don’t think he was) but the point about more severe punishment is well made. If you stand little chance of getting caught and, even if you do, your bank gets fined, you’ll probably take the risk. The threat of dismissal might concentrate the mind a bit more but investment bankers seem remarkably good at getting new high-paying jobs even after being fired. Discouraging bad behaviour in the City therefore requires some criminal sanctions, in the same way we make executives individually liable for breaches of equality and health and safety laws.
In other areas, lawmakers have recognised that persuasion and education can only go so far. Reducing sexist and racist behaviour in the workplace, getting people to wear seatbelts, stopping footballers doing monkey chants at black players and turning drink driving from normal leisure activity into social suicide have all required the threat of punishment to lead the changes in attitudes and make them stick. Sometimes attitudes don’t change quickly enough so sanctions are needed to give them a helping hand. Stopping racist language and accidents is important but so is preventing financiers from acting as though they were outside the law. Perhaps the same approach is needed.
Libor rigging and other bad behaviour is endemic in the financial sector and it is seen as normal by many insiders. But racist language and drink driving were once regarded in the same way – not exactly nice but, hey, boys will be boys. Changing assumptions took some time and some people had to be punished before others got the message. As I’ve said before, nudge isn’t always enough. Sometimes you need a big stick too.