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PCBB Banc Investment Daily September 08, 2015
Banc Investment Daily
September 08, 2015

Bankers Aged Like Fine Wine

Meryl Streep is like good wine, the older she gets the better she is. In her newest movie, Ricki and the Flash, the actress portrays a convincing rock and roll singer and bad mother. In the movie, she didn't go to her daughter's wedding, but the critics ignore that as they just love her ability to sing. Throughout her career, Meryl has taken us along on all of her improbable journeys: the Iron Lady that becomes the celebrated prime minister of England despite the gender phobic conservatism of her party's leaders; the happy singer of Abba hits in Mamma Mia; a formidable Miranda Priestly in the Devil Wears Prada and a totally believable Julia Child in Julie and Julia. The sixty-something star is great to watch and her vast experience always improves her next performance.
We may expect the same from the Group of Thirty, a top notch club of international financial experts. They have just released a report on how to reverse the loss of public trust in the banking industry since the crash. These old men have seen it all - Paul Volcker was the Fed chairman in the 80's; his side kick Jean Claude Trichet used to head the European Central Bank; William Rhodes was a top executive at Citigroup and Roger Ferguson is the president of TIAA-CREF. They have been there and done that financially so they don't need to prove anything.
For their report, they interviewed chairmen, board members and supervisors in 16 countries. That work led them to see that a good strong culture must be at the forefront of the banking industry. Bankers have to live their ethical values, not just talk about them and it takes work every day. To reverse the battered image of the financial industry, bankers have to constantly nourish its core values. One way to minimize the cost of compliance and reduce the potential for fines is to establish a long term change in attitude and activity driven by high integrity.
Paul Volcker's solution is to involve the CEO, the board of directors, upper management and management in far away branches. He says the goal is to make sure "the tone from the top has a clear echo from the bottom." The board then can build a dashboard of company values and ensure the values remain a priority. The culture of a bank is exhibited in its behaviors, supported by a few good values found in the bank's DNA.
To be sure that the message permeates the organization, it has to be championed by the CEO and the other top executives. Senior accountability must be in place and adherence to the standards has to be regularly tested. Don't ignore behaviors that point to issues and take internal actions when necessary.
The Group of Thirty also advocates better performance incentives. If someone wanders away from their values, including the CEO, bonus reductions, claw backs and even termination become possible. Boards have to be serious about ethics and they have to have an unwavering approach to them. They must make sure that high-quality risk management experts are also part of the team. The audit function has to be robust, well staffed, and at arm's length. If an employee reports any wrongdoing, the complaint must be taken seriously and confidentially.
Focusing your front line staff on setting the tone, monitoring, benchmarking and identifying best practices will lead to great results over time. When this is well done, there is also less need for enforcement.
As for her part, Meryl -the Iron Lady- Streep would understand this work ethic very well. Enjoy the show.