Can you be sure you won’t go the way of the banks?April 2009
The ethical recklessness of the financial sector has lessons for all people in business, says Danielle Cohen
The recent revelations of former HBOS head of regulatory risk Paul Moore that he had regularly warned the bank about its reckless behaviour have prompted another wave of public scrutiny into the banking sector. Focusing on which heads should roll may be important. But more vital is how to prevent this from happening again.
Businesses need to ask questions when things are going exceptionally well – not just when they are going badly. High returns usually mean hidden costs in terms of risks taken. In the case of the banks, aggressive growth strategies were reliant on unquantified – and wholly excessive – levels of risk. In any sector, running up hidden environmental, social or ethical costs may lead to higher margins in the short term, but this type of behaviour can lead to problems crawling out of the woodwork at a later date. Any of these situations can be damaging, not just to stakeholders but to the organization itself. Businesses must properly account for the real ethical costs of their operations. Despite the profusion of ethical codes currently available, research by the Chartered Institute of Management Accountants (CIMA) and the Institute of Business Ethics (Managing Responsible Business, 2008) shows that only a third of organizations measure or report on compliance with those codes.
There are important lessons for us all. At CIMA’s recent global ethics debate in London, panellists argued that it was the bankers’ mantra of ‘grow, grow, grow’ that led to corporate ethical responsibilities being sidelined. Short-term profits were the order of the day, and now the true cost of this behaviour is coming to light. But as the economist Noreena Hertz also said at the debate, ‘it will soon not only be banks that are vilified. Any corporation that is perceived to be acting against the public good will potentially be caught in the crossfire’. The opportunity now is for business to rebuild, using solid, credible foundations of ethical values. These values must be applied throughout their operations, with training and incentive systems to back them up.
The other challenge for business – and professions such as accountancy – lies in empowering individuals to speak up for what is right and in creating corporate cultures that allow their voices to be heard. According to Paul Moore’s version of events, the prevailing culture at HBOS meant that anyone who spoke out was brushed aside or branded a heretic. For now, though, regaining the trust of the public must start with the banks, regulators and governments showing a bit of humility by taking responsibility for their role in the crash.
Danielle Cohen is ethics manager at the Chartered Institute of Management Accountants
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