Financial Sector named ‘Worst Performer’
Ethical concerns are hard to quantify in businesses, but the IBE survey
does so by counting the number of incidents mentioned in the press regarding each sector over the past year. Each separate issue is counted just once.
In the latest analysis – and there are really no prizes for guessing this one – the worst performer is the financial sector, with a total of 181 allegations of misconduct. This compares with just 60 complaints in the second worst sector, retail, and accounts for 39% of all the news stories concerning business ethics last year.
The amount that the financial services sector was fined by the Financial Conduct Authority in 2014
You may think this number is rather high, and you’d be right – it is equivalent to one news story almost every working day. But it is doesn’t come as too much of a shock, given that this is in line with the number of incidents the same sector scored in 2012 and 2013. To add to this unenviable title, the sector saw a huge increase in the cost of fines in 2014. The Financial Conduct Authority levied fines of £424m in 2013; last year, this soared almost fourfold to £1.4bn. And bearing in mind the substantial efforts that have been made in the past 12 months to clean up practices and call out misconduct, it’s troubling that the score has not materially improved over the past two years.
Face-value analysis may not be helpful
The position might actually be much better than these discouraging statistics imply. Going into the detail of the analysis, the two most prominent ethical lapses seem to relate to the treatment of customers and to price fixing. Translate this into the financial context and it turns out that a lot of the coverage related to the efforts to manipulate the LIBOR interest rate benchmark and a parallel scandal in the foreign exchange market.
As shocking as these cases are, they are hardly in the financial mainstream. Instead, they relate to a handful of people in a specialised area of the banking sector and have nothing to do with 90% of the people who work in banks, let alone the hundreds of thousands who work in insurance, the securities industry, investment management or for advisers. Jim from Operations at XYZ Fund Management may work in the same broad sector as Greg the foreign exchange extraordinaire at ABC Bank, but that’s most likely where their similarities end. That the actions of a few taint everyone else is unjust, to say the least.
External references provide context
Interestingly, the major ethical concerns that the public has in relation to business (as expressed in opinion polls rather than the IBE survey) are now narrowly focused on tax avoidance and executive pay – which may suggest that the huge efforts to change cultures and improve the customer experience are having some effect. Clearly, finance is in the firing line here, but probably no more so than mainstream business. Notwithstanding HSBC’s woes, it is the likes of Google, Amazon and Starbucks that have caught most of the flak on tax, while anger about executive pay is now mainstream, not just an issue of bankers’ bonuses.
Reshaping an industry’s culture is like turning a supertanker
It’s clear from the IBE’s survey that, in 2015, the sector still seems blighted by lapses which took place some years ago and which no longer reflect finance industry practice. The row about HSBC Private Bank and its efforts to help clients avoid tax is just the latest error to surface. The survey acts as a useful reminder that it takes a long time for a change of policy ordered from the bridge to show through in the day-to-day direction of a business, and ultimately the sector. And shifting perceptions? Well, that is an even lengthier task.
The original version of this article was published in the March 2015 print edition of the Review.