Quis custodiet ipsos custodes?
October 16 2018
Some 5 years after the Parliamentary Commission’s withering report on banking culture, it is the House of Commons itself – its MPs, senior management and staff – who face their own brutal and shocking appraisal. The disgraceful and, in some cases, criminal conduct by some of them and their collective failure to deal, legally or adequately or at all, with bullying and harassment of junior staff, particularly women, by senior staff and MPs is laid bare in this report by retired judge, Dame Laura Cox.
It would perhaps not have been politic of those bankers – quizzed by the Parliamentary Commission about their failure to raise concerns about the misbehaviour of fellow traders and bankers – to have pointed out to their inquisitors that the number of MPs who blew the whistle on fellow MPs who broke the expenses rules and, in some cases, committed fraud was the grand total of zero. (It would though have been hugely enjoyable for fans of sanctimonious humbug.) Those in the financial sector who had to take the MPs’ justified criticisms can perhaps now enjoy a touch of schadenfreude when they read Cox describe the “omertà that many MPs practice in respect of bad conduct by one of their number” and that “Members turn a blind eye to dishonourable behaviour by others”.
But the report goes further. Despite the 1995 Nolan Committee report on Standards in Public Life making it clear that MPs had to display the highest standards and that “it is essential for public confidence that they they should be seen to do so”, it seems – and who could possibly have foreseen this? – that self-regulation doesn’t work. The Cox report describes an entrenched culture “cascading from the top down, of deference, subservience, acquiescence and silence, in which bullying and sexual harassment have been able to thrive and have long been tolerated and concealed.” Processes and policies, no matter what fluffy names they are given (Cox is particularly critical of the “Valuing Others” policy) are described as not fit for purpose and not even compliant with existing laws on harassment and discrimination, let alone best practice. Investigations are inadequate and carried out by amateurs. Confidentiality is not respected, staff are fearful and unsupported and retaliation – or threats of it – are common.
The report makes for grim reading. Even grimmer in the two days since its publication has been the defensive reaction of MPs and senior staff at the Commons at the very idea of having to take action beyond the token. The House of Commons may consider itself a special case though, as Cox acidly points out, while “Members of Parliament are elected representatives…their mandate does not entitle them to bully or harass those who are employed….to support and assist them.”
But this report has much from which every employer, from senior managers down, and not just HR Departments, can learn. In an era of #MeToo, of younger generations being unwilling (rightly) to put up with boorish (at best) and criminal (at worst) behaviour in the workplace, when an unhappy employee can create unwelcome publicity and force companies to take action, all organisations can learn from the failures so forensically dissected in this report. It is not just Parliament which is a stressful workplace. All workplaces are likely to face these problems to a greater or lesser extent and it is no easy task trying to handle matters which can range from someone being insensitive and impolite, via bullying, leering, insulting remarks all the way to actions which may amount to serious crimes.
Three points in particular are worth highlighting:
- A “devotion to process and language rather than to real effectiveness” is a waste of time. Procedures and rules are necessary but never sufficient. They are merely proof of the importance with which the issue is viewed. But the real test of whether you have the right policies in place is whether your employees trust you to investigate properly and act on findings, no matter who is involved. Without that trust even the best written procedures are mere will 0′ the wisps.
- Those at the top have to lead by example. In yesterday’s radio interview Dame Laura posited three questions which those at the top should ask themselves when having to manage cultural change:
- “Do I understand that radical change is needed?”
- “Can I deliver that change?
- “Will staff have confidence that I can deliver that change?” Answering that third question honestly requires a level of self-knowledge and courage that is not as common as it should be.
- Codes of Conduct are a fancy way of reminding people that good manners, politeness and civility matter. At their heart, good manners are about being kind to others (and kindness is a much underrated virtue). Employees, managers, colleagues, the temporary and contracting staff who do the myriad tasks which keep a workplace going, however senior or junior, are human beings, not simply resources. Politeness and thoughtfulness to those around us cost nothing, can help mitigate even the most stressful of jobs and are the bare minimum which should be expected of – and for – all staff.
And, finally, not for the first – and certainly not for the last – time, if a problem happens, don’t ignore it. “This cycle of repeatedly reacting to crises only after they have developed into crises, and sometimes only after unwelcome publicity, is a perilous approach to adopt for any organisation, but it is completely hopeless for a place of work.”
As for the House of Commons, if it really is serious about changing its culture, it needs to realise – as others have – that this is the work of years, not weeks or months, and is a task which is never finished.
A Risky Business
September 16 2018
According to this survey (taken this August), only 3% of people had a very positive view of financial services, with 57% having a very or somewhat negative view. And all this 11 years after the run on Northern Rock and a decade after the Lehman’s bankruptcy, the bailout of RBS, the Lloyds takeover of HBoS and the disappearance of venerable institutions redolent of Britain’s sober manufacturing past, such as the Bradford & Bingley Building Society. One might have thought that a decade would have been enough for people to forget what happened. But like an itch that continues to be scratched, banks have, right up to the present day, provided many more examples justifying customers’ perennial exasperation with financial services providers: closure of branches, endless IT problems, the continuing PPI mis-selling saga, interest rates for savers still at rock bottom, mis-selling and mis-advice over pensions. Even the much vaunted culture change programmes embarked on by many banks don’t seem to have changed perceptions, possibly because some of the sector’s leaders have not fully appreciated that this applies to them too.
The 10-year anniversary has brought out two figures from the past to give their take on where we are now and, in so doing, they managed to compliment themselves (without seeming to, unless that was the point of the exercise) on their past successes. The first was Gordon Brown, the Prime Minister in charge when the crisis struck and famous for having claimed in Parliament that his efforts “saved the world” or its banks, anyway. Certainly, the efforts of his government in autumn 2008 prevented the failure of the entire British banking system. Would it be uncharitable to consider what responsibility his government (and the previous government in which he served as Chancellor) had for the state in which banks found themselves that autumn? Had earlier warning signals perhaps been ignored by regulators? Still, his claim that a more fractured system of political governance might make it harder for governments to co-operate should another financial meltdown occur is well made. It is not just within financial institutions that silos can prevent those at the top seeing the full picture; the same can happen at governmental and regulatory levels too.
And so to Bob Diamond, never shy about arguing the case for aggressive investment banks and the need to take risk, who popped up on the radio last week to tell us that we should view Barclays (which did not get government funding) very differently to RBS, which did. Possibly a touch premature, given that the SFO trial of senior Barclays executives in relation to Barclays’ capital raising that autumn is not due to start until January 2019. (Even Diamond’s previous arch-critic, Lord Mandelson, after his change of heart, has weighed in echoing his criticism.) Far from being concerned about a breakdown of trust between governments (Brown’s concern) or, indeed, trust in banking, let alone the culture at Barclays or other banks in the period leading up to the crash, Diamond thinks that the changes made in the last decade have made banks “too risk averse”, that without risk, banks won’t lend, the economy won’t grow.
Both men have a point. But they miss something which has not been much canvassed in the reams of commentary devoted to what happened a decade ago. Regardless of how well risks are understood, regardless of how co-operative governments and regulators are, regardless of how good the rules are, regardless of how many wonderful AI developed risk management systems are used, there will never be a perfect financial system. Or a perfect regulatory system. Problems will always arise. And there will be warning signs – about people, about institutions, about certain types of business. They may not be obvious or easy to read. As the haystack gets bigger, trying to find the needle in it becomes ever harder. Identifying what needs to be followed up and what can be ignored takes skill and experience. Sensing what might become serious and getting people to act before it does so takes persistence. No-one wants to be a Cassandra, endlessly forecasting doom. Even fewer want to listen to her.
Being prepared for the next big meltdown is necessary. But just as much effort – rather more, in fact – needs to be focused on listening to – and acting on – those warning signs, to catching problems (whether mistakes, incompetence or deliberate wrongdoing) early, when they are small, when they can be contained and resolved without too much pain or collateral damage, when they can become learning opportunities for all rather than crises to be managed. Problems, however small, don’t just need fixing then forgetting. They also tell you a story – about the institution, about the people in it, about how business is done. If we are to avoid the inevitable recitation, after every scandal, of the numerous opportunities when the issue might have been identified, acted on and stopped – or mitigated, it is a story which needs to be listened to.
After all, Cassandra turned out to be right.
August 1 2018
Last month the FCA published its near final rules on the Senior Manager and Certification Regime, a hefty 420 pages (and that’s not counting the consultation papers, responses and rules for insurers and solo regulated firms and so forth). So many words to deal with what was succinctly described in this paragraph of the Report of the Parliamentary Commission on Banking Standards:
“One of the most dismal features of the banking industry to emerge from our evidence was the striking limitation on the sense of personal responsibility and accountability of the leaders within the industry for the widespread failings and abuses over which they presided. Ignorance was offered as the main excuse. It was not always accidental. Those who should have been exercising supervisory or leadership roles benefited from an accountability firewall between themselves and individual misconduct, and demonstrated poor, perhaps deliberately poor, understanding of the front line. Senior executives were aware that they would not be punished for what they could not see and promptly donned the blindfolds. Where they could not claim ignorance, they fell back on the claim that everyone was party to a decision, so that no individual could be held squarely to blame—the Murder on the Orient Express defence. It is imperative that in future senior executives in banks have an incentive to know what is happening on their watch—not an incentive to remain ignorant in case the regulator comes calling.”
But what does taking responsibility really mean?
A few days after the FCA’s publication, the death was announced of someone who, in his life, gave three striking examples of this: Lord Carrington, Foreign Secretary 1979-1982, subsequently Nato Secretary-General and the last politician to have served in Churchill’s post-war Cabinet. Much of the commentary on him focused on his resignation following the Argentinian invasion of the Falklands in 1982. Though absolved of personal blame by the Franks Report, he explained his decision to resign thus: “It did not seem to me a time for self-justification and certainly not to cling to office. I think the country is more important than oneself.” In his autobiography he wrote: “The nation feels that there has been a disgrace. Someone must have been to blame. The disgrace must be purged. The person to purge it should be the minister in charge. That was me.”
Those 7 sentences admirably summarise what it means to be in charge and to take responsibility when something goes wrong on your watch.
(It would not be far-fetched to say that the nation might well feel that aspects of banking have in recent years been “a disgrace” which ought to be purged.)
It was not the first time Carrington had offered his resignation. As a very junior minister at the time of the Crichel Down affair in 1954 (a landmark case on the rights of individuals vs the interests of the state and the standards to be expected of Ministers) he had offered his resignation though it had been refused. It was the senior Minister in charge who resigned following findings of severe maladministration in his department, the first such Ministerial resignation since 1917.
Most surprisingly of all, despite being awarded the Military Cross in 1945, Carrington never mentioned it in his autobiography, stating that he only got it because of the good men he had under him and that it was “all such a rough raffle. Pot luck – nothing to do with me.” Well, hardly.
Still, that is what marks out leaders: recognising that being senior means taking responsibility even when you are not to blame and having the humility to know that your own achievements rest on the hard work of others (and a fair amount of luck) at least as much as on your own efforts.
What might we learn from this?
- Well, however wonderful the rules, having people around to set a good example and be good role models is even better.
- Role models can be found in the most unexpected of persons.
- And, finally, the aim of all good and long-lasting training is to ensure that concepts such as responsibility and leadership become an instinctive and genuine part of a person’s every day conduct and behaviour and not simply something to trot out in specified circumstances.