‘Culture and conduct in banking – isn’t that old news?’ I am sure I am not the only person to have gotten that type of reaction when the subject is raised today. The answer is a clear ‘No’, and the case for continued focus is a very strong one indeed.
The G30’s work, along with that of many others including the outstanding team at the Federal Reserve Bank of New York [See also the In Focus Article Education and Ethics] and smart bank executives across America, makes it clear that the bank conduct and culture journey is never over. It is an ongoing, evolving, shifting process. Creating and sustaining desired culture and conduct requires a process and mindset, not a single destination. It needs constant attention from the board and senior managers, who must exhibit and model a firm’s culture, and these priorities must be reflected in messaging, training, and performance appraisals throughout the company at all levels. [See also the Ground Breakers Article An Interview with Kathleen Taylor]
Vigilance against bad behavior and toxic cultural developments in major firms (both banking and non-banking) cannot let up because failures still occur, and material fines, reputational damage, and fallout result. Addressing and avoiding poor risk assessment, a foolish a search for yield, poor cultural norms, or serious wrongdoing must be an ongoing exercise. Think of the WireCard debacle in Germany. Or Archegos’s collapse and multi-billion-dollar losses in Switzerland and the US. [See also the Good Counsel Article Lessons Learned from the Archegos Default]
Or consider the massive payout by Boeing’s insurers for the failure of its board over the company’s lax safety culture. Such failures demonstrate that the focus on best practices, on measurement, on establishing what is and is not acceptable within a firm’s culture, must continue. Importantly the contours of the landscape in which firms operate and are profitable is constantly changing. This too requires cultural and conduct shifts and evolution.
For instance, seizing the opportunities that the green transition offers firms necessitates a wholesale adjustment in strategies, business goals and, yes, also in conduct and culture. Many firms – now almost a majority thanks to Mark Carney’s efforts – have signed up to net zero plans and to scope 1, 2, and 3 TCFD reporting. They have a great deal to do.
How are they going to implement and monitor measurable greenhouse gas outcomes year-to-year, business unit to business unit? This will require a reimagining of the firm’s goals and its internal processes, including many aspects of its employees’ conduct and culture. Employees must understand the new goals, how they affect businesses, product design, their clients and emerging opportunities for profitable ventures. Firm and employee performance against green targets will need to be measured. Those results will need to be audited.
This essential green transition requires significant and lasting step-changes in bank conduct. Getting to net zero requires that we embed and internalize firm-specific short, medium, and long-term net zero goals. For this to be real and effective, cultural changes in most firms will be necessary. This green transition we have all embarked upon cannot be about box ticking, or it will not be effective, and our goals will be missed.
Just as a firm’s internal conduct norms depend on the strategies and goals established at the C-suite level, so too outcomes depend on how the altered strategies are reflected in expected conduct. Firms must increasingly walk the environmental talk, or their employees will see through green-tinted statements and view them as mere greenwashing and virtue-signaling rather than representing real, meaningful change. This is already becoming visible firm-to-firm.
A good observer, analyst, investor, or employee can tell if a firm and its leadership are serious about the transition. Increasingly, as net zero reporting and real results becomes standardized and demanded by our communities of investors and customers, firms that fail to live up to the greening social contract they have with society will be penalized.
As the ESG wave rises and rises, and as the great asset transfer from baby boomers to millennials and young Generation X & Y investors gets underway, pressure on firms to make the leap on green conduct and culture will build. That wave will swamp those who deny the shifting greening of conduct and cultural norms that is part of the evolution of banking and its place in society.
There are, of course, many other aspects of banking conduct and cultural evolution. From the impact of the #MeToo movement, to Black Lives Matter, to increasing gender diversity and inclusion, the landscape in which banks operate and within which they must grow and prosper is constantly shifting.
And the war in Ukraine drives home anew how important it is that the financial sector speeds its support of a transition to green tech and renewables— as a mechanism to protect the West and the world from rent-seeking autocrats with distorted narratives and massive militaries.
The key message here is the work is never done. That good leadership on conduct and culture requires consistent focus, openness to change, and vigilance to poor outcomes. It is never easy, and it does not end. But that is what makes banking and life interesting and worth living.
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