Mike Smith
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16 November, 2011

Can the City of London become the conscience of the financial world, asks Michael Smith

Michael Smith
Michael Smith
What does the City of London stand for in the world? It provides thousands of jobs, pays the UK Treasury £54 billion in taxes each year and represents nine per cent of UK GDP. It is the world’s leading financial centre. Yet there remains a deep public mistrust of bankers and banking around the world, exacerbated by the Greek and Italian sovereign debt crises. Ordinary people, from public sector workers to pensioners and the unemployed, feel they are paying the price in reduced living standards for banking excesses. The police may have cleared the so-called anti-capitalist demonstrators from Wall Street. But there has been a surprising degree of public support for them and those in the tented village outside St Paul’s Cathedral.

Are there signs that the culture of banking and business is changing? Are we seeing the beginning of a sea-change in the values that drive financial services?

At a recent conference on restoring trust in the City of London, the mood music, the rhetoric, hit all the right notes. It was hosted in the Mansion House by Lord Mayor Alderman Michael Bear, the outgoing Lord Mayor of London. In his opening remarks he emphasised the need to ‘get the regulation right’ but this was no substitute for ‘getting the right values and behaviours in the City’, to regain the public’s trust.

Richard Sermon, chairman of the Lord Mayor’s advisory board for restoring trust in the City, emphasised leadership, culture and good behaviour: ‘attitudinal change rather than just behavioural compliance’. Man cannot live by regulation alone, he said. ‘People need to feel proud of what they do. The integrity of individuals is integral to the success of enterprises. We have outsourced integrity in decision-making to the regulators.’ He called for a ‘common purpose of instilling trust and values into our businesses. Integrity is not just the highest moral principles but also soundness, unity and wholeness.’

The investment banker Ken Costa, Chairman of Lazard International from 2007 until 2011, who heads the Church of England’s enquiry into restoring ethics to the City, acknowledged a ‘widespread perception that banking is an amoral or immoral profession. We have broken from our moorings.’ Seventy per cent of those polled sympathised with the demonstrators outside St Paul’s. Financial markets, he said, ‘have drifted from the ethical basis on which they are based. We are at a tipping point.’ A cloud of public anger and frustration was growing.

Costa claimed it was impossible to legislate out bad practice. ‘The only viable solution lies within us: to reconnect the financial and the ethical.’ Quoting from Adam Smith’s Theory of Moral Sentiments, he called for ‘a pervasive moral spirit in which the desire to do well is nurtured by the desire to do good. The causes [of the economic crisis] are at root moral’. We needed to ‘relearn the grammar of morality. We should be more comfortable about talking about values in public. The cost of economic freedom is moral vigilance, not an ossified code of do’s and don’ts. The general public is far more comfortable about talking about values than we [in the City] are.’

Costa emphasised that this was a leadership issue: ‘business leaders need to be comfortable about talking about integrity, honesty, trust and respect.’

So the good rhetoric was there. But while the Lord Mayor’s conference called for ‘behavioural change’, what this means in practice was hardly spelt out. Interventions from the floor suggested ‘the abolition of boardroom reward for failure’ and a cap on undeserved bonuses, still seen as excessive. Someone said that Gordon Gekko’s infamous phrase from the film Wall Street, ‘Greed is good’, should be changed to ‘Profit is good. Greed is bad.’

Lady Susan Rice, Managing Director of Lloyds TSB in Scotland, said that the nine leading UK banks will launch a new Chartered Bankers Professional Standards Board, aiming to turn financial service from an industry to a profession, with all the implications that holds for upholding the highest ethical standards of probity. And Philippa Foster-Back, Director of the Institute of Business Ethics, announced IBE’s new joint-initiative with the Chartered Institute for Securities and Investment for ‘Investing in Integrity’, to be launched in January (

Stephen Timms MP, Labour’s Shadow Minister for Employment, spelt out just how much things still need to change, when he spoke two weeks later on ‘honesty in the City’, at St Lawrence Jewry Church in the City.

The gap between lowest and highest paid in organisations needs to be closed, he said. The pay of the heads of FTSE 100 companies is 145 times that of average salaries, according to the UK's High Pay Commission. ‘Polarization on such an enormous scale—growing affluence for a few and increasing hardship for the many—is not sustainable. And it isn’t an honest assessment of different peoples’ contributions. Could we put ordinary employees on remuneration committees, to apply some common sense to these decisions?’

Secondly, companies needed to be honest about their tax bills. All but two FTSE 100 companies have subsidiaries in tax havens, largely to reduce parent companies’ tax bills. The system was surrounded in secrecy, he said. He called for ‘country-by-country’ reporting of companies’ profits in each country they operate and how much tax they pay there.

Thirdly, the need to tackle bribery and corruption. He cited the Swedish construction company Skanska as a model. It refuses to do business in countries which demand corrupt payments. As a result, ‘Countries that really want to make a break with endemic corruption are asking Skanska to come in and help.’

Speaking alongside Timms, Paul Moore, former head of group regulatory risk at Halifax Bank of Scotland (now part of Lloyds TSB), said that such changes needed to be supported by legislation.There was a need to reform company law to show that ethical considerations had been taken into account in decision-making. ‘The vast majority of people who work in the City are good and honest people who have been caught up in a system of which they are not proud. They want to be part of the change too,’ he said. ‘Ultimately, it is the responsibility of the leaders of financial institutions – not their regulators, shareholders or other stakeholders – to create, oversee and imbue their organizations with an enlightened culture based on professionalism and integrity.’

So, given good leadership, cultures can change. It may be a long, hard road. But could the City of London, and the business world it represents, yet become the conscience of the global economy? After all, as David Cameron told the World Economic Forum, ‘it is time to place the market within a moral framework.’

Michael Smith is a freelance journalist and head of communications for Initiatives of Change, UK.  

NOTE: Individuals of many cultures, nationalities, religions, and beliefs are actively involved with Initiatives of Change. These commentaries represent the views of the writer and not necessarily those of Initiatives of Change as a whole.

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