Can banks regain public trust? The Banking & Finance Oath is where to begin.
This article was co-authored with Dr Simon Longstaff, the Executive Director of The Ethics Centre. It first appeared on the ABC Religion and Ethics website on the 18th April 2016. Click here to view the original version.
Well, it’s come to this.
In over a quarter of a century of working with and in financial services, we have seen the best and worst of what the industry has to offer.
We have seen how banks can fund projects that build a nation, offer a hand up to the marginalised, and help sustain communities.
We have also seen how banks can allow personal profit and self-interest to be prioritised over a higher purpose, creating environments where unethical conduct is normalised.
Unfortunately, it is the latter image of banking and finance that today dominates the headlines and public opinion. As a result, there is growing opinion that the industry is in breach of its social contract.
The majority (if not all) of the ethical failures that are besetting banks are systemic in nature – they are not the result of a handful of individuals who have gone rogue. Whether it’s rate-fixing or providing conflicted financial advice, these incidents are not isolated to one institution and cannot be explained away by reference to a “few bad apples.”
Systemic ethical failures are caused by flawed systems. It is these flawed systems that create conditions that normalise, condone and sustain unethical conduct. Ultimately, and usually unwittingly, flawed systems are maintained by leaders holding positions of power across the system.
To be clear, we do not suggest that this is a conscious or deliberate approach taken by most leaders in the industry. Rather, for many, it is simply inconceivable that the system could be fundamentally different.
Yet, to address the current malaise, “conventional wisdom” must be challenged. There is no alternative but to take a system-wide approach, and this will require leaders across the industry, be they bankers, regulators or politicians, to collaborate.
In an address at the Aspen Ideas Festival last year, Jonathan Haidt, Professor of Ethical Leadership in the Stern School of Business at New York University, argued that throughout history, whenever we make progress as a species, it is a result of humans voluntarily and informally suppressing competition in favour of finding ways to collaborate. He refers to this phenomenon as “disruptive cooperation.”
A collaborative approach does not suggest that we try to create some type of beige, sterile monoculture. Banks must differentiate. Indeed, our belief is that, in the future, banks will no longer be able to differentiate according to what they do. Rather, the future is to be found in differentiation between companies according to what they mean.
In addition, a collaborative approach does not suggest that we remove all competition from the industry. The benefits of competition are undisputed. However, for the good of the system as a whole – and therefore for the good of society – there is one core element that must be reserved from competition: the ethical foundations on which the whole system is built. If we want to address the systemic ethical issues that plague the industry, then there is a basic, minimum ethical standard that must be adopted by all as a common core.
For a collaborative approach to work, there must first and foremost be a genuine belief among leaders that the problems to be faced are real, systemic in nature, and of a kind that requires them to join together in a coordinated response. If leaders are in denial, or forced to come to these realisations kicking and screaming, then any attempt to create a cooperative response will prove to be futile.
But assuming this common belief exists, just imagine the possibilities.
Imagine if leaders in the industry put aside commercial (and even personal) rivalries to join together for the common purpose of restoring the industry’s integrity.
Imagine if, by working together, the leaders could demonstrate that they can effectively ”self-regulate” – thus complementing formal regulation and lessening the overall regulatory burden.
Imagine if, slowly but surely, as their actions began to speak louder than their words, these leaders engender renewed public trust in the industry, revitalising the spirit of the implied social contract.
Imagine that, as a result of winning the confidence of the regulators and public, these leaders freed employees in the industry from the shackles of excessive compliance and allowed them to focus on what is most important – namely, serving customers and the community as profitable commercial enterprises.
Just imagine …
Now stop. There is no need to imagine, because the groundwork for all of this was laid five years ago. Quietly – without fanfare – a group of industry leaders established the Banking + Finance Oath (BFO). The Oath is voluntary. It is made by individuals (not companies). It establishes a shared foundation of inter-personal accountability that can then be built up by any company wishing to define its own character and culture, within the bounds of basic decency.
The BFO is already here – just waiting for a critical mass of people in banking and finance – and especially their leaders – to make a commitment. The standard it asks for is not one of perfection, but of diligence, commitment and care.
The aim of the BFO is to look beyond mere “tokenism.” It’s not enough just to sign (or be seen to sign) the Oath. Signatories are asked to reflect on the meaning of the Oath before signing. There is an expectation that it then informs their choices and behaviour. In other words, Signatories must honour their commitments and, in doing so, address the flaws that currently exist in the system.
To do so requires moral courage – both to challenge long held beliefs and to counter the resistance that will arise among those wedded to the status quo. This will be a patient, resilient form of leadership, and most likely unpopular – at least at the start.
We understand that, as things stand today, this approach may appear a bit far-fetched, even preposterous. However, we believe that what we have proposed is practical and latent with enormous potential.
The BFO spans the whole banking and finance industry. It has been set up to examine systemic issues. It is held to account by The Ethics Centre (to keep the initiative true to its purpose). As such, it presents a powerful alternative to a Royal Commission.