How Select should criticisms of banking culture be?

It appears that everyone is running around shouting about the latest financial services scandals (Libor/Euribor, Interest Rate Swaps).  Heads are being demanded on the proverbial platters but that seems to me to miss the underlying issue.

Questioning Bob Diamond (late CEO of Barclays) in front of the Treasury Select Committee, Mark Garnier MP [Conservative, Wyre Forest] highlighted that owing to the culture of Libor Rate Setting within Barclays for years prior to 2007 Rate Setters were not reporting attempts by traders to fix the reported rate (on behalf of the bank).  This depicts a cultural mismatch between attempted criminal behaviour and reporting to senior management or Regulators.

In the USA the Federal Reserve had noted that banks on average were reporting their borrowing costs some 36 basis points below what was being signalled via other measures.  A number of Regulators also noted in various reports at the time of the Financial Crisis in 2008 that there was a mismatch between the reported rates of interest being paid by banks and independent measures - indicating that something was amiss.  However nothing else ensued to ascertain whether something was wrong.  This led Andrew Tyrie MP, the Chairman of the Treasury Select Committee to hint that the Regulators "were asleep at the wheel".

Diamond has acknowledged that the problems (at Barclays and in other Financial Services scandals) have arisen due to the culture in place - but nothing has been said about how that might have been made more robust.

Regulators banks and politicians have missed the fundamental issue that how we allow people to manage culture in large corporations is the seat of this type of problem.  More to the point, there are no natural checks and balances that make it easy for employees (whatever organisation they belong to) to point things up as being adrift from an acceptable standard.  John Mann MP [Labour, Bassetlaw] highlighted that Diamond and his senior team apparently had not even attempted to question the possibility that things might not be OK despite the reports that had been floating around since around 2007.  A teflon response indicated that Diamond and those of his ilk simply don't want to step up and recognise that they have a responsibility to ask questions before things are highlighted as having gone wrong.

The pressure to ask such questions would be more acute if the organisational culture had a clearer set of benchmarks for end-to-end impacts on all stakeholders.  This, in turn, would put pressure on other organisations to behave better.  Transparency is a huge incentive to be seen to be doing things right.  Transparency, however, requires effort to be maintained.  It seems, for the past few years at least, that hasn't been the top priority of those in charge.

When is Co-operative Compleat?

Moving along from the basic discussion about shareholder involvement I notice that David Cameron is now promoting the idea of Co-operatives as part of moral capitalism. Is this really (as he says) historic Conservative Party policy?

Well I think we can leave that question unanswered - the more important point is that fundamentally the political argument is shifting in favour of models that are more integrated with overall societal needs. In general they are becoming more Compleat.

What is missing from all of this is any thought-through guidance as to what that actually means. The Compleat Biz remains one of the few works out there that provide the answers.

I was engaged in dialogue last week with someone who questioned whether it is possible to construct models of business that make the shareholder community more responsive rather than merely being the providers of capital. The answer seems to lie in the political will-power to change the paradigm of the last 60+ years.

On that basis lobbying of politicians should continue unabated to make sure we seize the current opportunity to build a better society for everyone by restructuring the prevailing model of capitalism. (Coincidentally it is likely to be far more profitable as well.)

Is the world waking up to shareholder power?

As readers will know - I've been recommending for years that shareholders should be given a statutory role to get more involved in companies' activities. Prime Minister David Cameron and Business Secretary Vince Cable are now talking about making it a legal requirement for shareholders to have mandatory oversight on directors' pay.

However the time it has taken for emergence of this level of interest in changing the free market model is frankly a disgrace. The prevailing idea that somehow allowing the status quo (on the basis that top talent would walk elsewhere) was blind stupidity. The so-called top talent is often nowhere near as good as the huge salaries that they command appear to state.

The reasons are fairly obvious - big corporate doesn't have any binding requirements to engage with the wider community and the impersonality of size obscures the ground-level impacts of executive management behaviours. Only now are people beginning to make the connections between the free behaviours we have been brainwashed into seeing as acceptable.

The question for the moment is whether this awakening will spread to other areas of corporate activity. Shouldn't there be greater oversight and wider stakeholder involvement in more than just executive pay? The Pension Funds have not done society a huge service to date by their silence in the arena of corporate governance and it would be useful to have rather more critical voices aired.

Time to push the Compleat Biz agenda a little harder - the politicians appear to be starting to listen.