Diamonds and Rust

The takeaway: The British  scandal over interest-rate rigging underscores the need for ethical climate change in banking. In addition to regulatory and policy changes, doing this involves the combined efforts of CEOs, boards of directors, investors, depositors, and other stakeholders to make banking better. To start, it means understanding and enhancing the moral shadow cast by every institutional and individual action. It also means cultivating a moral compass, along with a code of conduct or banker’s oath, so that principled business leadership and a fiduciary ethic can be revived. But this won’t work unless there’s also a firm commitment to embed ethical principles and sustainability commitments throughout the value chain.

The challenge to CEOs and governing boards is to foster a better climate in which the ethical beliefs and values of the firm can be embedded in business operations, relationships, and all forms of accountability. The challenge for rest of us – investors, depositors, employees, intermediaries, policymakers, regulators, the media and educational institutions – is to demand and enact a better climate in which the ethical beliefs and values of CEOs, governing boards, and capital investors can flourish.

“I’ve always tried to live my life by a moral code and things that I thought were right. And when I’ve been involved with institutions that I’ve been responsible for, I’ve tried to bring those standards of conduct into those organizations, and insist that those organizations live by that same kind of moral or ethical code…and that it conduct its business in a highly professional, responsible, ethical way.  I stressed that at Goldman Sachs in everything we did, and ultimately developed what we called Our Business Principles. It was a written statement of the special features of what we felt Goldman Sachs stood for, and there were fourteen of them. ‘The clients’ interests always come first, and if we serve our clients well, our success will follow.’ That was one of the principles. That was the kind of thing we talked about.” —John Whitehead, former Chairman of Goldman Sachs, author of Goldman’s “Business Principles”, Interview with Marcy Murninghan, 1997

We need more John Whiteheads. Desperately.

We also need more ethical, engaged, and diligent boards, and investors that recognize their fiduciary obligation does not mean favoring short-term profits at the expense of other values, including longer-term sustainable prosperity.

At a bigger level, we need more conscientious capital markets, which recognize that the purpose of finance is to serve society, not screw it.

All of these come to mind as we witness yet another banking scandal, the latest in what feels like a conveyor belt of bad behavior where money, power, and politics are involved.

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