Banking culture and collective responsibility: A memorandum to the UK Parliamentary Commission on Banking Standards

N Dorn

Research output: Book/Report/Inaugural speech/Farewell speechReportProfessional

Abstract

Basic assumptions • There is wide interest in connecting issues of (i) occupational culture, (ii) compliance/ misconduct, (iii) remuneration and (iv) clawback (the bonus/malus debate). • Individual-focussed measures (supervision, remuneration and measures in civil or criminal law) must be supplemented by a wider, whole-firm regulatory strategy. • Whilst attention has been drawn to ‘the tone at the top’, ‘the tone in the middle’ and ‘the tone at the bottom’ are as important. Collectively, mid- and lower-level staff see and know more than chief executives or boards. To reform culture, all levels need to be properly incentivised. • In cases of rule-breaking, recklessness or malfeasance, clawing back a proportion of past and/or present remuneration is a matter of economic justice. • However, questions about who to hold (co-)responsible and to target for recoveries need to be more imaginatively addressed than hitherto. Up to now, some of those working in the financial services industry have passively gained from the recklessness and misdemeanours of their peers – for example, through group bonuses – whilst not being at any risk of clawbacks unless they are also are flagrantly involved. All rewards for passive connivance should be withdrawn, indeed reversed. Recommendations • The Commission should recommend collective responsibility, financial accountability and clawbacks – applying laterally to co-workers of miscreants, as well as vertically to management. This would animate the occupational culture, incentivising all levels of banking staff, in a proactive and precautionary manner, to bring informal pressure to bear against reckless or improper practices and, where that fails, to trigger formal investigation, via reporting and whistleblowing. • A forthright approach would be to go for such linked cultural and remuneration reforms across the whole sector. A more tentative and exploratory step would be to use the (partly) publicly-owned banks as a testing ground. An alternative would be to require such reforms selectively, as conditions of settlement with regulators. If monitoring over time finds that the changes seem positive, then that could provide ammunition for wider change across the industry. Future work • Further thought needs to be given to the relationship between occupational culture within banking, and broader shifts of sentiment associated with the business cycle. • The relationship between (a) risk-taking and (b) the implicit public guarantees enjoyed by banks and liquidity support by central banks remains problematic.
Original languageEnglish
Place of PublicationLondon
Number of pages11
Publication statusPublished - 2013

Bibliographical note

geen DOI - This evidence was elicited from the author by the Parliamentary Commission in March 2013 and published by them in slightly amended form on 19 June 2013, with other evidence, in: Parliamentary Commission on Banking Standards, Changing Banking For Good, volume VI, written evidence, HL paper 27-VI/HC 175-VI, 19 June, London: Stationery Office, pp 983-989. To see the use made of the above evidence, see Parliamentary Commission on Banking Standards, Changing Banking For Good, volume II, chapters 1 to 11 and annexes together with formal minutes, 12 June, http://www.publications.parliament.uk/pa/jt201314/jtselect/jtpcbs/27/27ii.pdf, in particular pp 123 (accountability firewall), 137 (gaining from the recklessness of others), 363 (cultural change) and 401 (collective self-discipline). [Some version of the report have an incorrect attribution to me on page 371 (whistleblowing): that evidence came in fact from evidence submitted by the Chartered Institute of Internal Auditors.]

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