Can bankers be trusted?
In advance of our event at the Bank of England on 21 March 2017, we asked interested parties to write on the theme: Worthy of trust? Law, ethics and culture in banking…
Can bankers be trusted? It’s a glib question, though a legitimate one. When I tell people that a lot of my work focuses on improving integrity in the financial sector, the most common response I get (outside of laughter) is the rhetorical question, ‘Isn’t that an oxymoron?’
After a decade teaching literally thousands of financial services professionals, I know first-hand that ethics in banking is not a paradox. I know how honourable and upstanding the majority of professionals in the financial industry are. And as a professor, I can guarantee you that academics are no way immune to the same types of problematic behaviour (greed, dishonesty) that bankers are often accused of.
However, there are aspects of the financial services industry that make it more difficult to consistently resist greed, selfishness, or dishonesty in the course of one’s professional obligations compared to some other industries.
A major one is that is that the inputs, processes, and outputs of the financial services industry are ‘money’. Research shows that priming people with money makes them less helpful, less interpersonally attuned, and more likely to engage in unethical behaviour.
A second one is that many professionals in financial services are highly motivated to meet quantitative targets. Unrealistic or ‘stretch’ quantitative targets often lead to unethical behaviour, as scandals at Barclays, Lloyd’s and Wells Fargo testify.
Worse, these problematic tendencies are core to the professional identity bankers’ associate with their profession. In a clever study, the behavioural economists Alain Cohn, Ernst Fehr and Michel André Maréchal asked a group of investment bankers to play a game where they were asked to toss a coin privately ten times. They were paid for the number of times they reported having tossed “heads”. However, before they did so, half the bankers answered a series of questions designed to make their identity as a banker more salient (such as, “What is your function at this bank?”). The other half did not. Those who were thinking about themselves as a banker when they went to flip the coins reporting tossing substantially more “heads” than chance—suggesting they were being dishonest in their reporting. They also tossed substantially more “heads” than those who weren’t thinking of themselves as bankers.
How do we change this culture? Just because the financial industry has some elements working it doesn’t mean that positive change isn’t possible. Many of the solutions traditionally proposed, such as limiting bankers’ pay, have been discussed at length by those on both sides of the pond (like here or here), but meaningful reform or regulation in this domain seems an uphill battle to say the least.
In writing this blog, I was asked to offer a new or different voice in this conversation. So below I offer some food for thought, using ideas derived from social science, of interventions that could support a culture of integrity in the UK financial services industry.
One thing to think about is how to humanise the work that financial services professionals do. It is difficult to keep in mind that at the end of the fancy trades and complex transactions that many banks engage in are customers – from university students trying to keep out of overdraft, to pensioners whose fixed incomes depend on the quality and risk profile of the deals those bankers make. It can be hard to remember that when one’s job consists of staring all day at screens covered in spreadsheets. It might be easier to remember the end client if the traders who worked on those transactions had to meet them. Decades of research confirms that negative behaviour is exacerbated when we neglect or avoid thinking about the humanity of those whom our actions effect. Though less research has focused on the positive consequences of attending to the humanity of those whom our actions effect, I would bet that risky trading would be curbed if those making the trades were regularly required to take a group of pensioners affected by those trades out to tea.
Another thing worth thinking about is how to move beyond quantitative targets for performance. Organisations tend to resist moving away from hard targets, as they appear clear and objective, and have delivered performance in the past. However, we need to think more creatively about how to motivate and incentivise the behaviour we want to see. This might involve more qualitative assessments of customer satisfaction, focusing on client retention and referrals rather than sales, or creating cultures more tolerant of mistakes.
Finally, research shows that being moral, and appearing moral to oneself, is important to nearly everyone. You know how, when people are admitting their failures or mistakes, they often say, “But that’s not who I am”? Making individuals’ own personal identities relevant to the decisions they make in the course of their job will almost certainly raise the quality of the behaviour we see in any organisation.
In short, there are lots of evidence-based ways we know would be likely to improve behaviour in financial services. We just need to be courageous and creative enough to try them.