16th July 2012 by The Harried House Hunter
Another public inquiry and another scandal have engulfed financial services in the UK as Barclays Bank is fined for fixing LIBOR rates. The resignation of the organisation’s Chairman, Chief Executive and Chief Operating Officer along with a £300 million fine is not enough to alter this culture of greed and arrogance in some quarters of financial services.
The Institute of Financial Planning (IFP) has supported the Question of Trust Campaign in a bid to more widely engage with the financial services community to bring an end to this culture. As usual, it is the consumer that suffers most. Because they are unable to trust financial institutions, people end up doing nothing to improve their financial situation or worse do the wrong thing. As we can see, not even the shareholders of these large companies are benefiting as share prices and dividend growth remain under severe pressure. The beneficiaries in nearly all cases are those responsible for the greed and who are able to define their own rules and remuneration programmes.
There are a number of areas of concern that need to be addressed, particularly as we are still in the midst of the global economic turmoil. Consumers everywhere need to take more action to plan for what seems like an uncertain future and they need to trust the service provider that they choose. It seems extraordinary that these institutions have not yet realised that if their customer trusts them and believes that they are sitting on the same side of the table with medium to long term horizons, they will do more business with them. It is equally astonishing that their actions historically have only been punished with fines which are easily met.
For too long now we have had to put up with one mis-selling scandal after another, so that the good work that does exist gets completely overshadowed. Some of the scandals actually started off as good consumer propositions but greed and short term incentives have taken over. Those selling the solutions have been incentivised to sell more and more. As a result, improper activity has taken place. People have either lost sight of, or never had, a moral compass.
The Question of Trust campaign has been established to halt this decline and to help build a stronger future for UK financial services. The campaign will seek to establish best practice and measures whereby those that have taken specific steps can be recognised and, in time, taken to account. Measures will be introduced to recognise champions and point the finger at those that have taken no action so that the consumer is better placed to take the right decision.
The qualitative research carried out with YouGov amongst Chief Executives of financial services organisations in the UK confirmed our perception and academic research. Not only is there a lack of trust but that outside of individual corporate activity, nothing was being done centrally to arrest this decline. The campaign expects to fulfil this role and motivate others to engage with it. Evidence of success will perhaps give confidence to the government and regulators to support the campaign.
It was staggering to note that an MBA programme in Harvard had dropped the ethical component. This is astonishing given the behaviour that we have seen in the UK. The leaders in banking have basically seen themselves as being above the regulation over the last few years in particular. The merging of investment and retail banks has brought different drivers into these businesses. The leadership and governance of these organisations have either been asleep at the wheel or driving business to meet their own outcomes and serve their own objectives. As alluded to earlier there is no obvious customer or shareholder benefit!
The subject of ethics and behaviour is so crucial. Most importantly, compliance is not the same thing as doing the right thing. There are other great examples from other sectors where the business establishes particularly clear values and engages both the staff and customers of the business to ensure that they are keeping on the right track.
Part of the academic research undertaken by Professor Christine Ennew of Nottingham University, picked up on the difference between active and forced trust. Many people are forced to trust their own bank because they need a bank account or other services but they don’t trust banks as a sector. There is a huge benefit to getting this right because engaged customers that trust the organisation will inevitably do more business. There will be mutual benefit to everybody doing the right thing with the customer at the heart of the process.
This ground breaking campaign is potentially a massive project but it needs the buy-in of the broader financial services sector to ensure success. This is also not a short term campaign because building trust takes a considerable amount of time and cannot be achieved overnight. Trust takes years in some cases to build and minutes to lose! Words need to be backed up by actions and consistent delivery of statements of intent. With the hard work and efforts being made by those supporting this campaign, the catalyst for change is now underway.
Originally published on Mint.
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