The cost of irresponsible business

Barclays, and four of its former executives, have been charged with three counts of fraud relating to fundraising with Qatari investors during the banking crisis of 2008.

Though we’ve been through banking contraventions before – PPI, Libor, Forex – this is the first criminal case from the Serious Fraud Office against senior managers over activities in the crisis nearly a decade ago.

Since 2008 companies have sharpened the focus on sustainability, responsible business, and higher Purpose. Yet despite this emphasis, the Barclays case is the latest in a series of high profile crises of leadership and culture – Uber, United Airlines, American Airlines…

Sadly this is the dark side of belonging and its powerful impact on business performance. Culture has a huge influence on decision-making: what’s right, wrong, or a tolerable stretch of ethics? How will my leader or my investors react?

These were extraordinary circumstances. It’s not every day that the leaders of a bank have to make decisions for its very survival. But the consequences of that action, leading to the SFO’s charges, now bring a new threat to the future of the institution.

Despite admirable work in all the financial institutions to improve culture, significant challenges remain, that affect all of us who belong to banks in different ways: leaders, employees, investors, customers, regulators, citizens seeking a stable economy.

Cost to business from harmful culture

The cost is huge. Firstly there’s the regulatory fines themselves. A quick look at some of the headlines gives some staggering figures:

‘Britain’s big four banks rack up £50bn in fines since the financial crisis with HSBC set to pay £500m in US for rigging foreign exchange markets’
(This is Money, 3 Aug 2015)

‘Financial fines of banks reaches 150 billion in 5 years’
(Consultancy.uk, 18 February 2016)

‘The banking industry’s bill for bad behaviour: $300bn’
(The Telegraph, 13 Nov 2014)

‘World’s Biggest Banks Fined $321 Billion Since Financial Crisis’
(Bloomberg, 2 March 2017)

Then there’s legal fees, reparation to customers, and damage to reputation. Even the most established brands will struggle to bounce back from criminal charges, depending on remaining value of goodwill.

Add it all up and it’s unsustainable.

Leadership, culture and values

The challenge for leadership is to preserve ethics and standards even in the hardest times.

Thinking back to banking in 2008, with banks fighting for survival, did desperate times cause for desperate measures?

The impact of leadership on culture is in decision-making. What is a ‘good’ decision? What is ‘good business’? What do we tolerate in order to endure? Leaders set the standards.

No wonder the Financial Reporting Council (FRC) is so concerned about the role of boards and culture.

The FRC’s work on how to lead the tone from the top, relate ethics to remuneration, and report on culture in the annual report, has already helped to establish new practice.

At the time of the crash Warren Buffet commented that “It’s only when the tide’s out that we’ll see who’s been swimming naked”

And when stated values show their true colours.

Barclays values – respect, integrity, service, excellence and stewardship – are up in huge tinted letters on the glass around their reception, on the entrance from Canary Wharf tube station. An old colleague took a photo for me from outside in the public space. A kerfuffle inside meant the photo is of a security guard holding up his hand against the glass to indicate ‘STOP!’ – behind the word ‘Integrity’.

Whether the photo is ironic or prophetic, this serious issue is for the SFO’s legal case to conclude.

How do you lead culture? Is it all about compliance? Character?

Ethical contraventions continued since the crash, despite sterling work by the financial institutions on culture and communications, a hefty emphasis on compliance, and a complexity of new regulations.

But the downside of a compliance culture is that it becomes more about conformity: people can stop thinking. Prof Solomon Asche’s experiments demonstrated this more than 60 years ago.

Leading culture demands that leaders demonstrate strength of character. Great insights to the importance of character in leadership are shred in recent work by both the Ivey School at Canada’s Western University and the Jubilee Centre for Character and Virtue at University of Birmingham.

Commitment to Ethos as well as Purpose

Leading a culture of ethics takes more than comms or compliance. It takes commitment to shared ethos, as well as purpose.

Most companies understand Purpose (what we’re here for) alongside profit. From Aristotle to modern psychology, we’ve learned that Ethos (what we believe in) is even more important as a basis for decisions.

The behaviour of leaders is mirrored in those that follow, so a culture of ethics will tend to replicate from the top. The challenge for leaders is not just ‘Tell us: what should we do?’ but ‘Show us what we shouldn’t do’.

Knowing what we believe in as an organisation, and why this matters, provides focus, context, and relevance to the practical decisions of every day business – the very big and the banal. In the busyness of business, Ethos is helpful as a compass, a quick reference for navigating grey areas.

Commitment goes beyond compliance: people will do the right thing because they want to, not just because they have to. That’s why belonging is so powerful. It motivates us to uphold standards because we feel part of something – not just reaching for profit at any cost: making ethos alive and active in the practicality of business.

British Business faces untold challenges ahead: we need our leaders to lead with a strong ethos, commitment to ethics, and run business responsibly.

To prevent any further damage, and wasted billions, leaders and investors need to put ethos back at the heart and the head of decisions. Otherwise the cost of irresponsible business may exceed the sustainability of the institution itself.

For prevention rather than legal cure, our question for leaders in every boardroom to explore is:

‘What business opportunity would you say ‘No’ to?’

We’re happy to share our best practice on leadership and culture, and how to build a sense of belonging around Ethos.

Call or email us to arrange a chat.