Ask people outside financial services what bankers have been doing for the past few years and you will probably receive an unprintable response. Ask bankers themselves and they may reply: training.
In the wake of the financial crisis and a series of scandals and reputational blows, for instance, all 98,000 employees of Deutsche Bank, about 13,000 senior bankers at Goldman Sachs, and Barclays’ 140,000 staff have been or are being taken through programmes aimed at reinforcing codes, values, behaviour and a strong, positive corporate culture.
Given the recent record of the banks, such programmes invite scepticism. Even assuming the companies can cement good behaviour, it is hard to guarantee their managers will successfully monitor, measure and maintain adherence to the values, particularly when competitive pressure mounts as markets revive.
Dan Ostergaard, managing partner of Integrity By Design, a Swiss-based group that advises on culture change and ethical training, is cautiously optimistic. But he points out that if banks do not address organisational structure, including the whole process of recruitment, promotion, remuneration and how they take day-to-day business decisions, it could be “an expensive dog-and-pony show”.
The show itself is well under way. At Barclays, at the end of a half-day workshop in groups of 20 or 30, staff are asked to commit to one thing they would change to reflect the bank’s values of “respect, integrity, service, excellence and stewardship”. At Deutsche Bank, if team members score less than 80 per cent in a mandatory online test on compliance, they are “red-flagged” to their team leader and their career and pay opportunities are affected. At Goldman, senior bankers, starting with the chairman, have spent hours debating a fictional case study about “Diversified Financial”, a systemically important institution on the brink of collapse.
The fact such retraining is necessary is in itself an indictment of the banks’ past performance in this area. Goldman, for instance, has had a set of business principles since 1979, and boasted of a famously strong corporate culture. Yet it still fell into a foul-smelling tangle in 2007 over the so-called Abacus deal, after which it was accused of knowingly marketing doomed mortgage products to clients.
The ensuing political and public relations disaster sent Goldman back to review its standards and practices, as part of a three-year effort that includes the case study training. Judging from a recent session for 100 vice-presidents in London, one of the lessons is that even applying the first business principle – “Our clients’ interests always come first” – is difficult when, as in the original Abacus deal, Goldman has many clients, with conflicting interests.
In parallel with the training, Goldman has tightened procedures to handle conflicts of interest. But the Diversified Financial case deliberately echoes those dilemmas. Staff are asked to vote on the best action after watching video scenarios – complete with CNBC-style news reports. At the London session, the response was often divided. As the managing director leading the group pointed out to the audience: “You can see from the votes that these things are hard. Even at the management committee [session] people didn’t agree on all this stuff.”
Philippa Foster Back, director of the UK-based Institute of Business Ethics since 2001, says the current commitment to improved behaviour – not just in financial services but across business – looks more robust than flimsier efforts in the early 2000s, when companies often issued a code of conduct and left it at that. The newer programmes begin at board level; they involve intensive training and continued engagement; and they are global.
For instance, Antony Jenkins, Barclays’ chief executive, set out the bank’s “Transform” programme after the Libor interest rate-rigging scandal undermined his predecessor Bob Diamond’s early efforts at post-crisis culture change. Sessions for senior leaders take place in a room at headquarters styled like a Roman agora, to encourage open discussion. Barclays’ workshops are led by 1,500 “values leaders” from all parts of the group, trained by a “faculty” of outside experts. They lead smaller groups through discussion of what Barclays’ principles mean to individuals.
Deutsche Bank, also tainted by mortgage and Libor scandals, relies more on mandatory computer modules to instil an understanding of compliance and control systems. It supplements these with classroom-style sessions and additional training in risk culture and risk awareness. Of the two approaches, face-to-face is clearly better, says Mr Ostergaard. He warns that while e-learning is “scalable and you ensure consistency, it doesn’t really have impact”.
Training can only go so far. To discourage irresponsibility, the overall business context has to be right. Even “good” bankers responded to incentives to sell bad mortgages before the crisis. Leaders must eliminate what Ms Foster Back calls the “say-do gap”. For instance, simply declaring that good conduct will be measured, but failing to give it any weight in bonus decisions, sends a message that culture and values do not matter.
All three banks say they have restructured appraisal and promotion processes to assess the strengths of individual employees against the company’s business values.
Goldman emphasises it is up to every employee to police his or her colleagues. That includes reporting those who breach the rules. “We have accountability to ourselves and to each other, because we eat from the same plate,” the managing director who led the recent London forum told his audience.
Sustaining such programmes requires a concerted effort beyond the first round of retraining. Surveys are the main tool the banks will use to tell whether they are on track.
To measure progress at Barclays, Mr Jenkins will poll staff, external “opinion-formers” and customers. He expects to be able to feed these surveys into a “balanced scorecard” for the group. “I’ve been clear that [this] is a five to 10-year journey, so this isn’t sprinkling a bit of PR magic and life suddenly gets better,” he says.
In the end, though, the most realistic assessment comes from Gerald Corrigan, the veteran Goldman Sachs executive and former US Federal Reserve regulator. He helped carry out the review of the bank’s practices, prompting changes that included a superstructure of internal committees to which bankers refer potentially problematic deals. The bank says it is now easier for bankers to accept that sometimes a potentially lucrative transaction will be rejected. Even so, Mr Corrigan says “anybody who thinks there’s a fail-safe solution to all this stuff is nuts”.
So when the next Diversified Financial looms into view, the question will not be whether bankers completed their training – they all will have – but whether they absorbed enough of the lessons to avoid the pitfalls many fell into last time.