Margareta Pagano: Time for a 'Condor moment' if we want to restore trust in the banks
Midweek View: Without question, there has been a total collapse of ethical behaviour in the industry. We've seen that in a litany of events
Margareta Pagano is a former business editor of the Independent on Sunday who now writes columns and business interviews for a range of publications, including the Independent, Independent on Sunday and London Evening Standard.
Wednesday 18 July 2012
Officers in the British Army practice what they call the "Condor moment"; it's when they take time to pause and reflect before going into action. In more grown-up military language, that Condor moment is also known as "courageous restraint".
It's a code of conduct enshrined in the British Army's Value and Standards handbook by which every soldier, from private to general has to abide. As General Sir Richard Dannatt, the former chief of the General Staff, says in the foreword, it's these principles of self-sacrifice, unequivocal commitment and mutual trust that is the basis of the army's reputation for excellence.
But, more pertinently, General Dannatt also says: "The responsibility of commanders is to be at the heart of this process. It cannot be delegated, and I hold you all accountable for it. The values are about character and spirit; the standards define our actions and behaviour. I expect everyone in the army to abide by these values and standards."
The army, precisely because it deals with such critical situations of life and death, has developed its own powerful code covering all ranks.
Banking may not be quite as vital to us as those finely tuned life-and-death moments, but it is a critical utility on which all our livelihoods depend and having the public's trust is essential. Indeed, trust is at the heart of the banking system – credit comes from the Latin credo – meaning "I believe" or "I trust". If trust goes, then there is not much credit left.
Without question, there has been a total collapse in ethical behaviour in the industry; we've seen that demonstrated in a litany of events ranging from the sub-prime housing crisis which triggered the financial crash, to the over-lending to countries and individuals, from the ambitious and greedy takeover by Royal Bank of Scotland of ABN Amro through to the mis-selling of PPI and now to Liborgate.
None of these events is an isolated one. Each demonstrated the complete break-down in the values of an entire generation of bankers and financiers who used – and abused – the companies they worked for in pursuit of personal gain way beyond what they should have been paid by increasing risk to maximize their bonuses. Bonus is another Latin word – bono, for the good – which has deviated from its original meaning.
Yet at the latest count, the Libor-fixing scandal, which has already snared Barclays, could cost it and the other 16 banks involved up to £27bn in fines and litigation. If this is the case, it will hit banks' profits, reducing shareholders' dividends and ultimately the capital they can hold which will mean fewer loans. Everyone loses.
It's a scandal that could also keep the UK's banks in the courts for months to come as the US criminal authorities claim they will start legal action this autumn, and may lead to other bank chiefs losing their jobs.
So how can trust be restored? Paul Moore, the HBOS whistleblower who warned his former employer over its toxic sales culture and the excessive risks it was taking back in 2008, believes there is only one way to shake-up banking and that's by a fundamental reform of company law.At present, the responsibility of directors on the board of any publicly listed company is a fiduciary one; their ultimate responsibility is to look after the financial interests of the shareholders. This puts short-term profit at a premium.
Mr Moore, a barrister by training, adds that company law was designed for joint-stock companies decades ago when they were relatively small and had fewer responsibilities. But as these companies – and banks – have grown in size, so have their duties.
Instead of covering fiduciary duty alone, Mr Moore suggests the law should be changed so that directors could pause and be allowed to look at a much broader canvas. At one stroke, he claims the corporate culture would shift away from short-term gain to the maximum wellbeing of all parties, from shareholders to employees to suppliers.
If corporate law had operated like this, the Barclays board, for example, would have found it difficult to pay its directors such as Bob Diamond – and his lieutenants like Jerry del Missier, Rich Ricci and other top investment bankers such extraordinary salaries, as they could have been more easily challenged by investors.
Mr Moore's proposal is a radical one but should be looked at seriously by policy-makers if they want to stop employees and directors from short-term risks and take a longer view.
Time for a Condor moment.
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