Eldon-Online

Banking On The Culture

Back in the days ... I know, here I go again into history but bear with me ... your average Bank Manager was considered to be the pillar of local society, rather than the pillock as they are being sometimes unfairly portrayed today (that is, if you can find one!). Banks, or at least those with which I was familiar, had something of an aura about them, and the people who worked in them were respected. You went to the Bank because you needed them more than they needed you. They knew all about you and your business anyway, because it was common knowledge in the town. Everyone knew your business.

If Mrs Jones went to see her Bank Manager it was probable that she would be sat down, handed a cup of tea and given time to talk about her most recent question about investing. The Manager was quite likely to say, "I wouldn't advise that one Mrs. Jones, there will be others". No business for the bank on that occasion, then, and no performance bonus for the Manager for not selling a product! There were no bonuses.

By the time I hit the banking industry as a filing clerk and then as a teller, I used to see my Manager arrive around 10  a.m, do a quick tour of the banking hall, go to his office and read the newspaper before heading off for lunch around 12:30. Return around 2 - 2:30 sign a few papers and be out of the door by 4 p.m. Looks good, I thought, something to look forward to in the future, if I get that far. But the banking industry was way ahead of me. When I first became a Manager I was in the office by 7:30 and left after everyone else had left. Visiting customers in the market, trying to attract new business and build up the existing ones - everything that commercial bankers do today, really. Act as salespeople. But back then - still no bonuses. In Hong Kong your "bonus" was a 13th month payment, paid to all staff, if the Bank had a good year.

But then there was this thing called "culture". The dictionary definition did not really do the word justice. It was rather cold and clinical. I remember an occasion as I had just returned to Hong Kong to take up a new and senior position, being asked by a journalist to define the "culture" of HSBC. It was all about values, discipline, honesty and loyalty. A remarkable lack of "office politics", a cohesion of thought and principles.

And it seemed to be the discipline, and an understanding about doing the right thing not just paying it lip-service, that were keys. About leading by example. Indeed, HSBC was seen by some as being overly militaristic, and was sometimes criticised for appearing out-dated, irrelevant, and less likely to attract the brighter university graduates. Hmm! 

But the outpouring of anger about banks and bankers behaving badly has had me thinking more about what changed. Why, today, do banks find themselves in a dark hole with steep sides and little sign of redemption?

And it seems to me that a negative change in culture is an underlying theme.

Frankly, there were fewer rules in the past because the "spirit" and the " fundamental principles" of proper behaviour were clearly understood. Then came the new rules, followed by the people who spent their time trying to exploit the potential loopholes, and thinking less about what was right or wrong. Or they were trying to gauge just how far over the line they could go without being seriously penalised. So it's the behaviour - the culture - surely.

As banks became larger, usually by acquisition, they sometimes allowed the acquiree to inflict some of their culture on the acquirer so they didn't feel totally shut out of the acquisition process. And if it was a slightly more relaxed culture, what was once rigid and well-defined became more opaque. And if that was acceptable at the top - it was by definition as sure as hell acceptable lower down the organisation. After all, the shareholders wanted ever better returns, the analysts were judging you quarter by quarter, the regulators were not exactly keeping up - and while things were going well, nobody turned a hair.

And as an aside, it is now somewhat interesting to hear Sandy Weill, the architect of mega banks, now saying that big banks should be broken up. Hindsight's a wonderful skill - although I am not entirely in agreement with the concept that big is less safe than small, for a variety of reasons.

But the biggest cultural change of all? Money!

We had got used to the idea of the investment banking community being paid bonuses - but those got larger and larger, as did our eyes at the amounts being paid out. We were used to the idea of dealing rooms being treated differently, and the traders being paid bonuses. But eventually it came to the turn of the commercial bankers - the high street banks - to be paid bonuses.

When the Global Financial Crisis hit us in 2008, we blamed the investment banks for being greedy. Bonuses were huge. Products had been created - in the knowledge they were unsafe - but it didn't matter. It meant money in the pocket of a magnitude unimagineable. 

But here's the final change; the commercial banking staff were becoming eligible for bonus payments. A new phenomena for them, and when there is money on the table for the taking, even if it doesn't match the investment banking pay-offs - what happens to the old style adviser/bank manager I mentioned earlier? It's out of the window with the boring but tried and tested methods, and on with the glitzy "let's sell everything" attitude because it affects my pay!

Yes, it's a generalisation, of course.Not everyone behaves badly, but it doesn't need that many to bring down the walls?

This is NOT all about an unwillingness to progress, or a gripe about bonuses. It is not about analysis, and shareholders and profits and governments and regulators and rating agencies and the media ... it is about behaviour. Plain and simple.

If the banks want to regain some of their dignity and reputation, they will have to consider their culture. And that starts from the top. Visibly.

Sadly, from my perspective, it seems that the investment banking community hasn't changed - and that will be up to their clients, collectively, to make them do so. But for the man in the street, and for the popular media who are busy demonising the commercial and retail banks, they will want to see positive change in their institutions (not necessarily all institutions are tainted), and see a return to a culture with which they are more familiar. 

Damned If You Do ... Damned If You Don't!!

Aside from Bankers and others who now languish in the "robber baron" class, there are other professions too that seem to be in the category of getting no praise for getting it right - and tons of rubbishing if they get it wrong.

Hong Kong has just experienced its strongest winds in over a decade. A city where we used to more regularly experience typhoons that were a direct hit on us, and where the original "illegal structures" used to get blown away, and people died. We began to recognise the force and fury of these acts of nature! Nothing, I might add, like the tornados that seem to sweep through the mid-west of the USA with what seems to be increasing frequency and huge devastation, but nevertheless, enough to make you want to stay well inside.

So it was last Monday. What started off with a general storm warning signal being hosted, indicating that there was some blowy weather in the vicinity, eventually saw that storm pick up speed and ferocity to the extent that by the end of the day it had become Super Typhoon Vicente, and was heading reasonably close to Hong Kong.

The rapidity with which the storm developed came as a surprise to the folk at the Observatory, to the extent that they started to caution the public about the likelihood of higher storm signals being raised quite quickly. Flights into and out of Hong Kong were being increasingly affected, and in mid afternoon the Observatory warned that the signal No. 8 would probably have to be hoisted around 5 pm.

For those unfamiliar with Hong Kong's warning systems, there are only 5 numeric warnings; 1 which is cautionary, 3 which suggests that wind speeds are increasing and some precautions should be taken to bring in plants and chairs. Then the signals go to 8, 9 and 10. From 8 onwards, businesses close down (if they are open - and don't open if it is up in the morning).

A warning in advance helps people who have a long way to go home to make those arrangements, as with an approaching storm public transport becomes less frequent and in a big storm stops altogether.

So far so good, you might think. Businesses and staff had the necessary warnings in good time. They could make orderly arrangements to close up. Travellers could start to make enquiries about their flights.

As things turned out, the Observatory was correct with its warnings, and as the night progressed first the number 9 signal went up, and then the 10. By morning, even though the Super Typhoon had moved away, the signal number 8 was still up - but the Observatory said it should come down around 11 a.m. (For Hong Kong, businesses are expected to re-open two hours after the number 8 is lowered).

Result of the Typhoon? Lots of damage, although mostly trees and general debris. Some flooding - although not nearly as bad as experienced in Beijing last week, and lots of flights delayed or cancelled. Deaths? Nil.

And the public view? Anger because warnings were given two hours before the 8 signal went up, and a Book Fair had to close, losing money for the vendors. Anger at the airport because passengers "just had to get to their destination" - forget the fact that planes could not take off, or land for that matter.

And if there had been a death? There would have been anger because that had happened, and the Observatory obviously did not warn everyone soon enough.

I think some people need to grow up. If you can control the weather - then you can make a lot of money for yourself - but you can't! So why take it out on the Observatory and even more importantly the poor staff who have  to remain at work dealing with loud mouthed boorish oafs, of both sexes, who think their lives are so important they have to defy nature. It is not the check in clerk who caused the darned typhoon.

And why doesn't the media look for people who are not whining about the situation? Oh, sorry - naive rhetorical question.

And as for the Observatory? Continue to do what, in your judgement, you think is the best for the safety of Hong Kong but just recognise you'll never get thanked for it. Well, not always - Thank you.  

 

 

Conflict of Interest ... Interpretation

The issue of conflict of interest arises yet again, with the announcement today in Hong Kong that Lam Woon-kong, a gentleman with whom I have no quarrel personally, is going to remain as Exco Convenor, while at the same time remaining as Chairman of the Equal Opportunities Commission ... but only for another six months to end concerns about his independence.

Surely, bizarre? If there are concerns about independence now, they are going to remain for another six months. And if everyone has lived with it for six months, then why can they not live with it for a further two or three years? To say, as Mr Lam has done, that it would be "irresponsible" to quit either post abruptly is a red herring. As is the statement "... for the next six months, I will continue to carry out my duties ... and be vigilant to avoid any real or perceived conflicts in servicing my dual role." Come on, Mr Lam, you have always struck me as being an intelligent man, but perhaps you haven't noticed that public trust in utterances by Government servants, former or present, are not being treated as carrying much conviction at present. I am sure that, personally, you will make every effort to abide by your statement, but the media and Legco will be looking over your shoulder every millimeter of the way to ensure you do - with the risk that they will just drag up every little thing.

But that, of itself, isn't the issue. It is the whole subject of conflict of interest. If there is a potential conflict why accept the second job in the first place - or more worrying perhaps did you really think there was no conflict?

A few years ago - after I had retired, I found myself in a situation where an organisation with which I was already involved was being audited by the firm I spend a lot of time with now. Under a normal timetable, I would have risen to a position of greater influence within that organisation, so I raised the potential conflict issue. It was clear from the audit firm's perspective that I was conflicted, despite the fact that the organisation involved was prepared to state I had nothing to do with approving the accounts or was in any way involved. I therefore had a choice to make - which I took - and the fact I am still with the audit firm tells you which way I decided. I was also travelling a lot, as I still do now, so in more ways than one it was the right decision to take, but conflicts can arise in what might be the most innocuous of circumstances - and you cannot be too careful.

We live in a world today where corporate governance matters. Where regulators, and other watchdogs are all concerned about accountability, management and conflicts. And the way they are dealt with in an organisation reflects the culture of that organization. I am the last person who should be casting stones, but isn't Mr Diamond being blamed for setting a culture in Barclays that led others to say- if this the way they do it at the top, then it must be alright to do it at the bottom.

If Mr. Lam says "... it's okay for me to be conflicted for six more months, and then I will stop", so it must be alright for others to do the same. Isn't it a bit like a pregnant lady saying I will be pregnant for six more months and then I think I'll stop being pregnant?

I think the usage of "irresponsible" in the argument is itself irresponsible

Bankers - Ready, Aim ....

I must say that entering into the minefield of today's commentary on banks and bankers, might not be the wisest thing I have ever done. But ... let me start with a quotation from one of my favourite text books:

"If it be asked how such evils arise and are developed...they arise from transactions entered upon, either in sheer ignorance or in reckless violation of the fundamental principles of banking; and once entered upon, they develop themselves with fatal swiftness of growth."

                                                                            George Rae "The Country Banker" - Published 1885.

It was many years ago I entered the profession of banking, albeit initially as a filing clerk and through a series of roles at the "roll your sleeves up" end of banking, which eventually led into management I ended up 40 years later retiring with a somewhat better title than the one with which I had started.

When I was growing up (alright then, learning to behave in public), banking was a generally respected profession. But in fairness it was not complicated in those days either, just so long as you knew your customer and could provide - or perhaps refuse when necessary - the services they wanted. When I went on to a career in international banking, it was often to countries where banking was of the more traditional kind. Financing traders, manufacturers, small businesses and keeping safe the money that was entrusted to your care.

But times have changed, and although the excrement has now made physical contact with an electrically- powered oscillating air current distribution device, the current revelations of impropriety are sadly not a phenomenon that has happened overnight.

Like the rapid development of modern devices that have delivered more services to more customers more quickly than ever before, product development on its own was not really going to give you a market lead. Products could be copied quickly enough.

Meantime, shareholders were demanding bigger yields in the face of good results from other industries, analysts were focusing on the quarterly results and penalising those financial institutions that in their view were not delivering - choosing to ignore commentaries from banks who said they were focusing more on, and investing in, the long term. At the same time the financial services industry was being praised by Prime Ministers - Labour's Gordon Brown in particular with a 2007 speech where he told an audience of bankers that Labour aspired to replicate "their success" for the whole UK economy. The same man who said in 2005 that the better model for financial regulation was "not just a light touch, but a limited touch". So even the regulators were complicit in this unravelling.

In fact, if you look at it, everyone has had some sort of hand in either implicitly encouraging or taking a "Lord Nelson approach" (putting the telescope to the blind eye, for those unfamiliar with the story). But with all the opprobrium now being conveniently heaped on banks, bank boards, and bankers - you can bet that there will be many others covering their backsides as fast as they can. 

Since the GFC I have been at pains to point the finger mainly at the unethical behaviour of certain financial institutions - particularly the investment banks. (Interestingly by the way that no heads have rolled in that community). But clearly there have been less desirable elements at work in the commercial banking world as well, and I shall certainly have to be more even-handed in my comments on that score in future.

But while I can understand the rationale for the banks to try and live up to even unrealistic expectations, I cannot condone unethical and underhand behaviour of this nature. Is it criminal? - I am not a lawyer and cannot say, but even unethical people should be expected to bear accountability for their actions.

Of course with the benefit of hindsight, in the comfort of "retirement", it is easy for me to sit here and make condemning noises. I will say though, hand on heart, that if I had come across this sort of behaviour on my watch there would have been some searching questions asked.

I may have been a boring banker, (I always preferred to say "conservative"), but for my own peace of mind and an ability to sleep at night, I preferred it that way.

How the banks are going to restore the public's faith in their activities, I have no idea. Over time, I guess. But I also think you need to keep this in perspective. The reaction in Britain today is to call for "blood". So it was in the USA 2 or 3 years ago, but nothing has happened there. But why just get at the bankers. Has business always been clean and ethical? Have our politicians - not just in Britain always been the pillars of society we would expect them to be - and if caught out were they always punished? Indeed, there is a big campaign going on in Britain at present I believe to try and stamp out the abuse of the welfare system.

Yes, punish appropriately those who deserve it, but were the Banks to blame on their own? I think not, somehow.