UK_Com_PW_A

This article was first published in the January 2016 UK edition of Accounting and Business magazine.

The Bank of England is on the cusp of publishing a guideline on corporate governance in the banking sector and the crucial roles of boards. The desire is to dispel suspicion and re-engender trust in the financial sector so badly torn by the financial crisis. Part of this task is to look at culture, risk appetite and risk management, as well as management information and transparency.

This far on from the banking crisis and with corporate governance such an embedded part of business life, it seems strange that such a supervisory statement is needed at all. But perhaps this getting back to normal is a long road. Defining correct cultural behaviour is a matter of judgment, opinion and controversy. Take, for example, Hervé Falciani, the former HSBC employee whose disclosures started the ‘Swissleaks’ scandal on bank-supported tax evasion. Convicted of industrial espionage, he has been accused by the Swiss authorities of wanting to sell the data he stole. He denies financial gain as a motive, insisting he wanted to expose how banks support tax evasion and money laundering.

Last autumn the Bank of England also published its long-awaited judgment on the collapse of HBOS. The report said that the HBOS board had a ‘flawed and unbalanced strategy and a business model with inherent vulnerabilities arising from an excessive focus on market share, asset growth and short-term profitability’.

The report also made clear that, pre-2007, the bank was only concerned with risk in the context of its strategic objectives – a position that is now out of date. ‘Recent global standards also require risk appetites to address more difficult-to-quantify risks, such as reputational and conduct risks, as well as money laundering and unethical practices,’ the report added.

This is a big cultural change for banks and one that won’t be easy to deal with. Talk to any banker and the overriding objective is to avoid trouble from compliance. But that doesn’t create the culture of corporate governance that the Bank of England seeks.

The ‘Swissleaks’ case reinforces the position of the Institute of Business Ethics (IBE), which says that corporate whistleblowing arrangements are not working effectively. A recent IBE survey found that half of employees aware of misconduct do not speak up about their concerns. Its Ethics at Work survey tries to establish what employees think about the way corporate values are applied in Britain since 2005.

While corporate ethics programmes are maturing and employees becoming more aware of such programmes, expectations on the organisation are higher than ever. However, the survey found 45% would not be willing to raise concerns about misconduct and, of those who had spoken up, the number dissatisfied with the outcome of their whistleblowing had risen from 30% in 2012 to 61% in 2015. Corporates are failing to meet those heightened expectations, so we seem to be little further forward with the role of ethics in business.

Philippa Foster Back, IBE’s director, says that doing business ethically makes for better business. As business scandals continue to emerge, on the available evidence we can expect companies to be compliant, but not ethical. And there’s a difference – partly because the idea of ethical behaviour implies a common set of values and behaviours that are generally and widely accepted. However, it is far from clear that such a common framework actually exists today. If that framework isn’t in place, it is difficult to see how we can be taught to think and behave ethically.