MORALITY & BANKING

Yesterday I attended a talk at the RSA by John Lanchester who has recently written a book called Whoops! about the credit crunch.
The talk and subsequent questioning was mostly about the role of culture and regulation in banking; with the audience and speaker exploring how to develop a system that might be more sustainable.
I wrote a blog called Banking and the Common Good a while back which explored how the concept of common good could be placed as a central focus of a financial institution. Today’s blog picks up on some of these concepts.
The question is how we create a banking system that actually balances commercial objectives with social objectives that deliver benefit to the common good. I believe that a new language of responsibility needs to be imposed on the banks. Nearly all banks will tutor their leaders in Business Ethics; all banks have values statements that will include some version of “doing the right thing”.
But despite these words and intentions we still have a system that doesn’t in aggregate and from a macro-economic perspective deliver “the right thing” and act ethically in its impact. The frustration is that there are very few financial institutions that deliberately act in a clearly unethical way decision by decision, action by action, but in aggregate the effect is destructive.
The heart of the issue for me is one of what banks, especially investment banks, markets focused institutions and bank leadership more generally, value. And that is money, to this everything else is subservient. This is why banks are so successful, they have created extremely efficient systems for maximising profit to the exclusion of virtually all else. This creates inattentional blindness, which is the psychological phenomenon of being “blind” to anything apart from that which you are concentrating on, add hubris and you have a system that builds risk and is narrowly focused on one immediate outcome.
This valuing of one outcome only, with little assessment of second and third order effects and impacts, allows for a culture to become devoid of morals. And that moral bankruptcy turned into financial bankruptcy.
So what to do? Remembering that business ethics and values were taught and “on the wall” at our big financial institutions and offered no protection.
I would advocate a complete reversal of the incentive systems at our banks. We need an incentive system that puts most emphasis on demonstrating moral action and joined up thinking rather than seeking risk for greater return. This should be in an overtly, openly discussed moral framework. Leaders in these organisations need to become expert not just in maths and playing the markets, but seeing the impact of their business on different stakeholders and balancing this for commercial and social return.
Morality is at the very heart of our economic system. Adam Smith’s conception of markets was built on predictable outcomes between buyer and seller. The foundations of these predictable outcomes, in a time when regulation and rules of commerce were much less regimented and established than they are now, were moral action from individuals. I don’t think it is surprising that The Theory of Moral Sentiments, that Smith wrote 15 years prior to The Wealth of Nations and the majority of the books in The Wealth deal with how individuals living in society should conduct themselves. In order for the invisible hand, specialisation and the market dynamic to work as a value exchange there needs to be trust and in Smith’s conception this comes from morality.
This morality will need to be imposed. Major financial institutions have regressed back to the status quo, as John Lanchester said yesterday “the system is as risky as ever”. They will never voluntarily accept any balances to their earning power. So this will need to come from changed systems of regulation.
But this creates a paradox in that regulation, with its rule based approach, enables a moral vacuum by replacing human judgement with an attitude of “if we stay within the rules we are acting responsibly”. Ironically the FSA (the UK bank regulator) knew this. Over the past few years anyone working in a UK bank will be familiar with the pre-crash mantra of “principle based regulation”. No longer were we to work just within the “rules” but to their spirit. It didn’t work because it stayed at the surface, and people’s behaviour doesn’t change, in many cases the people need to change.
By changing what is valued in banks this will change who progresses within the organisations. This will be a key to unlock a new system. Let’s open up board positions on banks to a wider audience. What’s clear from the past two years is that having a career in banking behind you doesn’t give you any special insight or understanding so let’s have a more diverse group from environmentalists, to community leaders, to customers, having a real voice in the running of financial institutions.
It has been said that markets are amoral. That maybe true but they don’t work unless their participants act morally. Creating moral financial institutions working for commercial gain and the social common good is the challenge.

Please comment below and share using the social bookmark icons. Thanks as ever for reading.

Justin

Mail me: justin@basini.com
My website: http://www.basini.com/
Read my blog: http://www.blog.basini.com/
Follow me: www.twitter.com/justinbasini

Did you know you can sign up for updates from Justin Basini? Click here

5 rules for marketers as we move away from Greed to Fear


I was at a seminar last week organised by the Financial Services Forum where I was lucky enough to hear Lucian Camp talk about his take on the current crisis and how it challenges advertising and commuication. I agree with him that something fundamental has changed and we are moving away from a predominant focus on “Greed” to needs around “fear”.

However I don’t particularly like the concept of Greed and Fear since I have rarely heard consumers talk about these words directly. I prefer to think of it as “gain” and “protect”. Over the past 20 years the prevailing mood has been “gain” – gaining goods, houses, wealth, quality of life, happiness, health. This doesn’t mean we have achieved any of these things but we have experienced the advertising of aspiration.

We have now been shocked into a different mode – that of “protection”. We have all been given pause for thought on whether our jobs, our homes, our families, even the system we rely on, are secure and around for the long term. Products and messages that talk about protecting and sustaining what one has now are more in the current zeitgeist. These messages are also more in tune with the global sustainability issues that we are all facing.

Here are 5 rules for marketers to think of as we ride this trend:

1. Invest more time in understanding consumers worries, frustrations and concerns. I’ve often seen research spend too much time focusing on what people want, with almost an embarrassment to talk about problems that are more negative. Spend time wallowing in these fears with your consumer. From this new insights will come which might not be positive but will resonate strongly in today’s market.

2. Don’t be afraid to link your brand to these concerns in communication. One of the challenges that many of us will need to battle with is that if your career is less thn 15 years old then you’ve only ever worked in the good times. My generation of marketers have only been used to dealing with positive messaging – I think we are a bit afraid of the brand equity we build by talking about negative situations. The best brands will go with the consumer, build equity of “understanding” and “on your side” by reflecting consumer needs hence Rule#1.

3. Move your product development to focus on protection and design products which are sustainable and thrifty. I blogged a while ago about my adventures trying to fix my toaster. Products which help consumers protect what they have whilst having features which are thrifty and sustainable will better meet these needs. Products such as LCD TVs with “eco settings”, Ariel and its turn down to 30 campaign, or printers from HP which have much lower running costs are all examples.

4. Big brands have a great opportunity to gain market share. Small brands need to be faster and closer to their niche. In this environment there will be a natural move to bigger, less risky brands. The big brands that invest through this period will prosper. Those that don’t run the risk that consumers write them off as having failed during the downturn (even if they haven’t). Small brands need to be faster with new concepts and products and more focused than ever on their niches. Luckily more and more niches are appearing and new channels allow greater ability to connect with these groups.

5. (Small) Moments of pleasure matter more than ever. The protection agenda, and the recent crisis, for all the media’s efforts to persaude us otherwise, doesn’t mean a return to mud huts and sack cloth and ashes. However I suspect the embullience of the past cycle will be more muted for a long time. And that means that moments of pleasure and escape will mean even more to people. We are seeing this with consumer spending moving into cinema tickets, chocolate, staycations, and eating well at home, small moments of often thrifty pleasure.

As always please feel free to comment and share your views. I will try and reply to all comments so please leave one if you have a thought.

Also please feel free to share this blog with anyone you might feel is interested. I really appreciate your support as I build this blog.

Yours

Justin

justin@basini.com
http://www.basini.com/
justinbasini.blogspot.com
www.twitter.com/justinbasini

Did you know you can sign up for updates from Justin Basini? Click here