You’ve finished taking part in a ‘beauty parade’ for a potentially lucrative new client and there, casually discarded on the train, is a copy of the pitch book for a rival investment bank you believe to be the main competitor for the deal. Do you pick it up, take it back to the office and use the information to potentially secure the deal by less-than-honest means?
This was a genuine question asked by the CISI to a roomful of investment bankers during a recent conference. The majority, voting anonymously, said they would use it to gain an edge. In ethical terms, this is a minor misdemeanour, but highlights a bigger problem – doing the right thing doesn’t always help your career.
Barclays, of course, is in the midst of a shake-up following the conclusion of the Salz review that the cultures in its investment bank, created through a series of mergers over the years, were “rested on uncertain foundations”, while Goldman Sachs is hosting a series of townhall meetings spelling out exactly what sort of behaviour it expects from its employees.
The career disconnect
In fact, according to a survey published this week by the Economist Intelligence Unit and the CFA, 63% of investment banks have implemented a formal code of conduct in the last three years and 43% have introduced some sort of career or financial incentive to encourage adherence to ethical standards. Conflicting with this, however, is the fact that 53% of bankers thought that career progression would be difficult without “being flexible with ethical standards”.
“There’s a disconnect from what’s being said in these lecture theatres to investment bankers and the way they really behave,” said Polly Courtney, a former investment banker turned author. “No one is squeaky clean, and to behave in self-righteous manner against the grain of the team and the manager will damage your career.”
The culture of investment banks is still geared towards “patronage of individual senior bankers”, according to John N Reynolds, author of Ethics in Investment Banking, resulting in “loyalty required to be shown to individuals rather than the organisation to achieve promotion (and pay)”. In other words, make your manager look good and you’ll do well in terms of career progression and bonus.
Often this comes at the expense of clients. As Chris Arnade, a former Citigroup trader turned photographer and author, wrote in the Guardian, he was asked to regularly overcharge “clueless Japanese” clients and the “five-point rule” of never making more than five percentage points of profit from customers were flaunted with some firms making “7% or 10% profit per trade from clients, selling exotic products loaded with hidden traps”. These rule-breakers were rewarded more pay and better jobs, he said.
In advisory functions, there are subtler ways of making money from clients, said Courtney: “We were on a retainer basis, and we’d try to do as little as possible to inflate the monthly and annual fees, basically presenting the same ideas in a recycled format,” she said. “It was an easy way of making money at their expense, and something we used to joke about in the team.”
It’s easy to suggest that this behaviour is part of a bygone era, but ongoing scandals around rate-rigging, supposed “systematic profiteering” within RBS’s global restructuring group and possible collusion among traders within instant messenger chat rooms, suggest otherwise.
Jon Terry, global head of the HR consulting practice at PwC, was interviewed for the EIU ethics report and told us that a “worrying number” of investment bankers still behave in a manner that would be considered unethical – primarily in pursuit of a bigger bonus.
“Banks have gone some way in assessing compensation not just on the ‘what’ – namely, personal performance – but ‘how’ this figure was achieved. This is beginning, but it needs accelerating,” he said.
Some, however, have yet to be convinced. Roger Steare, corporate philosopher in residence and professor in the practice of organizational ethics, who tells us that he’s worked with banking groups, which collectively employ around 500,000 people, on their ethical standards. “It is my experience that the investment banking model itself has not been stress-tested on the widely accepted standards of human morality,” he said.
The first question banks need to ask themselves is ‘What is the purpose of the work we do?’, he said. “Those who get the answer that they’re helping other business and people to prosper in a fair manner are on the right lines. Institutions which say all the right things, but practice arrogant sociopathy, seeking enrichment for themselves at the expense of others will not survive and deserve to face existential oblivion.”
Steare isn’t suggesting that investment bankers are bad people – many act with integrity in their personal lives, he says, but simply do not understand how to transfer this to the workplace. “Investment bankers equate doing the right thing with compliance with the law, but they need look into the ethics of care and reason. Our ability to make logical and empathic decisions, enable us to lead good lives both personally and professionally.”
By enforcing a code of conduct and telling their employees to behave in a certain way is missing the point, says Steare. “Ethics training is a contradiction in terms – we train dogs. Investment bankers need to use the same values they use to make a decision in their personal lives in a professional situation.”