When it comes to the reputation of the financial sector, the good news is that a Google search for banker jokes turns up only 534,000 results, while a search for lawyer jokes garners more than 10.5 million hits. The bad news is that unethical behaviour in the legal profession appears to cost the world much less than marketplace tomfoolery conducted by so-called financial professionals.
There is no question that banking is dominated by decent individuals. There is also no question that in the eyes of too many people the significant contributions made to society by reputable bankers doesn't appear to amount to a hill of beans when compared to the financial impact of industry bad apples.
How ugly an impact are we talking about? According to Toronto-based finance executive Eric Tripp, if you add up all the economic costs and fines related to shameful banking industry actions that have occurred in recent memory, the number approaches US$8 trillion, about the GDP of China, not to mention about US$1,100 for every man, woman and child on the planet.
Tripp isn't just a concerned banker. He is the former president of BMO Capital Markets. And when retiring from that position in late February, he did not go silently into the night (or onto a Florida golf course). He left with a bang, taking advice from his parents and making an effort to leave the industry he loves better off than when he started by saying something that needed to be said.
In a call to action published by the new Ivey Business Journal, Tripp looked back over a 30-plus-year career, noting he could recall far too many cases of "financial mad cow disease" resulting from a range of judgment lapses, woeful product designs and a seemingly insatiable appetite for excessive leverage. "Think about the savings and loan scandal from the 1970s and 1980s," he says. "Think about the conflicts of interest that existed between research departments and investment banking units in the 1990s. Think about Enron and WorldCom and the shockingly poor risk management at Long-Term Capital Management, Bear Stearns and Lehman Brothers. Think of the crimes committed by Bernard Madoff and Allen Stanford."
The combined price of these debacles alone, he noted, has been estimated at over US$180 billion, and that's not including costs incurred by the industry related to Sarbanes-Oxley and other regulatory actions. And then, of course, there was the financial crisis, not to mention all the recent headlines about bankers behaving badly by manipulating markets and aiding wealthy clients avoid taxes.
Tripp argues that the number of folks involved in unethical activity doesn't really matter because the whole industry ultimately pays the price in reputational damage and the related reaction from regulatory bodies. And in his opinion, it will take "tangible cultural change within our industry before anyone feels confident that the bad genie is back in the bottle."
So to help good bankers fight the cumulative impact of fraud, excessive risk taking, poor judgment and underfunded regulation, he left the industry with a series of recommendations, ranging from doing more to highlight industry successes to making a better effort to seriously question flawed industry practices (including the controversial use of high-frequency trading computers made famous by financial journalist Michael Lewis in his book Flash Boys).
Top of Tripp's list of advice was a call for the banking industry to finally seriously consider developing a common values-based standard, perhaps even one with a revocable license to practice. "Doctors have the Hippocratic Oath. Lawyers have the Bar. Corporate boards have standards set by the Institute of Corporate Directors. Portfolio managers have the Chartered Financial Analyst designation. But bankers have nothing but their word. And that just isn't enough anymore."
Tripp hopes good bankers will work together to earn (or re-earn) public trust by following his recommendations. "If we do that," he notes, "we can read more about the good that our industry does and less about the scandals that make us all look bad." He's right. And whether it happens or not, banking is better off today because Tripp said what needed to be said.
ABOUT THE AUTHOR: Thomas Watson is an award-winning business journalist and editor of the new Ivey Business Journal published by the Ivey Business School at Western University in London, Ont.
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