Having faith in financial services
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Just to be on the safe side, it might be expedient for your next non-executive appointment to be given to a priest, or a rabbi or perhaps an imam.
I’m not suggesting that because the Pope’s visit is fairly imminent but because Hector Sants, now the not outgoing chief executive of the Financial Services Authority, recently raised the issue of ethics as a contributing cause of the financial crisis and posed the question: “Do regulators have a role to play in judging culture and ethics”?
Obviously having someone of the cloth on your board could reassure our ethical guardians at Canary Wharf that you are in business for nothing less than the greater good of humanity though I can’t help thinking that as businesses go you can’t get much more ethical than lending someone money to buy a home of their own.
I’m also inclined to the view that the financial crisis was brought about by a failure of regulation and in the UK context at least, not by avarice and greed or the other deadly sins but you couldn’t fault the man’s logic when he said: “Every other aspect of the regulatory framework is under scrutiny and we should not shy away from debating the culture question.”
Accordingly Sants believes that the focus for regulators should not be to define one “acceptable culture” because there are many different forms a positive culture can take. Rather, regulators should, in FSA speak, “focus on what an unacceptable culture looks like and what outcomes that drives”.
He then went on to define the circumstances when regulators could intervene to ensure firms “have the right cultures”. That could mean ensuring that they hire managers who act with integrity, by judging competency but also ensuring they understand the need to act with integrity, deliver the right culture and are equipped to do so.
The FSA, he also suggested, could also intervene to ensure firms have the right governance and behavioural framework to facilitate good judgement by their staff and assess the actions of the business against society’s wider expectations not just shareholder value.
To that end he advocated intervention by changing the Companies Act framework for directors. “The current requirement for directors is to promote the success of the company”, he said. “This is often interpreted in terms of shareholder value. Whilst this does include the need, for example, to ‘have regard to’ the impact on the community, I do not believe that is sufficient.
“There must be a stronger and more explicit obligation to wider society. There must be clear recognition of the need for institutions to contribute to the common good.”
The good news is that Sants believes that “Determining an ethical framework is for society as a whole, not an unelected regulatory agency”.
However, he also believes that it is the FSA’s role “to police behaviour and expect firms to have the right culture which facilitates the delivery of the outcomes we expect.
Surely if society get’s the first part right, then the FSA’s role policing our corporate conscience would be just an unnecessary infringement of our liberties and if we get it wrong, how can we be sure that a bureaucrat at Canary Wharf know any better?
