“Bank Culture and Financial Reform: What Works?” Upcoming panel event at the LSE, March 19th
March 11, 2015
I am pleased to announce an upcoming panel event at the LSE. Next March 19th, the Systemic Risk Centre (LSE) will be holding a “Bank Culture and Financial Reform: What Works?” The event, which I am organizing, is supported by the LSE’s Department of Management and the Principles for Responsible Investment initiative.
Bank culture is a novel and intriguing explanation to the problems faced by the financial industry. Five years ago, no bank expert or regulator would have accepted a diagnosis that wasn’t grounded in incentives, adverse selection or moral hazard. But starting with last year’s governmental reviews in the UK by Salz, Kay and other studies, the cultural explanation to the problems of the financial industry has become a suggestive and compelling alternative. Culture is about on norms rather than rules, beliefs rather than facts, and ethics rather than material incentives. For more, see a recent speech by William Dudley, the President of the NY Fed. Dudley said:
The problems originate from the culture of the firms, and this culture is largely shaped by the firms’ leadership. This means that the solution needs to originate from within the firms, from their leaders. What do I mean by the culture within a firm? Culture relates to the implicit norms that guide behavior in the absence of regulations or compliance rules—and sometimes despite those explicit restraints. Culture exists within every firm whether it is recognized or ignored, whether it is nurtured or neglected, and whether it is embraced or disavowed. Culture reflects the prevailing attitudes and behaviors within a firm. It is how people react not only to black and white, but to all of the shades of grey. Like a gentle breeze, culture may be hard to see, but you can feel it. Culture relates to what “should” I do, and not to what “can” I do.
New as it is to the regulatory discussion, the dangers of a toxic bank culture have long been known to finance insiders and social scientists. See, for example, Greg Smith’s notorious resignation memo from Goldman Sachs. For a more theoretical explanation, the academic studies by Karen Ho and Steve Mandis have explored of how culture can precipitate problems in investment banking (or lead them to drift into problems).
Aware of the cultural turn in the finance reform debate, one year ago I organized a panel event on the topic at the LSE, “Challenges and Opportunities in Reforming Bank Culture“ (with Nina Andreeva). It became one of the best-attended events. The core message that emerged was that for reform to be effective, there would have to be cultural change accompanying structural reforms in The City and Wall Street. Without a change of mindset, beliefs and values among the bankers, structural solutions such as bonus caps or the separation of commercial from investment banking might not accomplish their goal. (For a concrete example of how cultural solution differs radically from an incentive-based one, see this incisive post by Mandis.) For banks, the culture debate also has strategic implications. First-movers in cultural change might derive an enduring competitive advantage over the rest; by contrast, those that stall could be pushed out of investment banking altogether. Recent news appears to confirm this reasoning: Goldman, a pioneer in cultural reform such as tackling work-life imbalance, seems to be doing well in a difficult environment while RBS and Credit Suisse, which did not do much on the reform front, seem to be exiting the investment banking industry.
The upcoming panel event complements last year’s. While the first one established the existence of problem, the current one emphasizes solutions. Hence the title, “What works?” The premise is a pragmatist belief in experimentation and learning. As I see it, the solution to the cultural challenges of the banking industry is complex enough to be beyond the ability of a single academic from his or her office. The solution lies instead in the many distributed experiments in cultural reform being undertaken by various banks. What are they doing? What is working? What is failing? The solution, in other words, lies in bringing together different attempts and learning from them (see here for an example).
To this end, I have invited a solution-oriented panel. It’s made up of two consultants specialized in finance and culture, one former bank CEO, three London-based academic specialized in finance and management, and my favorite finance trade journalist. It will be chaired by a finance professor from Oxford. We’ll be discussing practical policies undertaken by concrete banks, and considering what is working and what is not. Here’s the line-up:
Academic panelists: Sandy Pepper (LSE Department of Management), Andrew Spicer (Cass Business School), Daniel Beunza (LSE Department of Management / Systemic Risk Centre)
Media panelist: Sarah Butcher (eFinancialCareers.com)
Banking panelists: Yann Gindre (former CEO, Natixis US)
Consultant panelists: Patricia Jackson (EY), Jo Geraghty (Culture Consultancy)
Chair: Joel Shapiro (Finance, Oxford Said Business School)
So… come and join. Free of charge, but registration needed. From 4:00 to 6.30 pm, followed by drinks.