How to reform bank culture? A panel event on bank culture that I organized this past May 19th at the LSE took up this question by examining the practical solutions that banks are introducing (see photos here). The panel underscored the need for both cultural reform and structural measures. To some extent, the more measures the better. However, it is crucial to ensure that structural changes complement, and do not trivialize or contradict, cultural reform. Changing values and beliefs is a delicate matter, and brute force does as much harm as good, even when voters feel morally justified to use a bazooka.

The event, held at LSE’s Systemic Risk Center, chaired by Joel Shapiro (Oxford University) and supported by the Department of Management and the Principles for Responsible Investment initiative, built on a previous session that called into question the narrow emphasis on structure of the official reports on financial reform. But critique, that longtime favorite of academics, can only go so far, and for that reason in the latest panel I assembled bankers, academics and journalists with the explicit purpose of discussing solutions: what new practices are banks attempting to reform their culture? Which ones are working? Which are not? What do we learn from it all?

Tone from the top and other cultural changes

Appropriately, the panelists started by tracing banking scandals directly to culture, that is, to the values, norms and beliefs that define these banks. One panelist, Patricia Jackson (EY), reminded us about the infamous cabbages that managers of HBOS (a UK retail bank) placed on the desks of underperforming salespeople. The over-effectiveness of this technique, which encouraged the hard selling that ultimately derailed the bank, underscores an established sociological tenet: that internal standing, status, esteem and avoidance of social opprobrium mater as much –if not more- than incentives. Another example of symbols that matter is the bottles of champagne that Libor-rigging bankers received from colleagues for “taking one for the team.”

But if culture is the problem, it can also be the solution. Another panelist, Andre Spicer (Cass), mentioned the importance of the tone from the top, that is, a careful attention to the symbolic actions and messages sent from the top management and especially from bank CEOs. This approach is now very much in use by large banks such as Barclays to “turn around the supertanker.” (Another approach entails mimicking non-banks such as gyms and airlines, but this is only possible for more agile start-up banks).

But exclusive reliance on soft aspects such as norms and values can make financial reform fragile and transitory. Another panelist, Sarah Butcher (eFinancialCareers) reminded us that soul-searching and reform discussions were widespread as far back as 2002, following the dot-com bubble and the widespread perception that equity analysts were responsible for inflating it. Yet despite the banker contrition at the time, the dot-com bubble was followed by the subprime trouble. Memories are short, it seems. Repentance is quick to fade.

Skin in the game and other structural changes

Partly for this reason, panelists to agreed that cultural change needs to be accompanied by structural reforms, that is, by changes in incentives, limits to the banks, etc. Most such reforms are variations on  “greater skin in the game:” make bankers subject to the consequences of their actions. In this regard, one policy that according to panelist Yann Gindre (PRI), appears to be working, is deferred bonuses and compensation. This has reduced the turnover of bankers within the City: by getting employees to stay in the same organization they can be expected to take greater responsibility for their actions. Gindre also recommended making fines come out of the bonus pool rather than from the bank’s profits, as otherwise it is the shareholder that foots the bill.

An intriguing variation of “skin in the game” idea is to combine accountability with financial models, and specifically risk management tools. According to Patricia Jackson, regulators have traditionally faced a problem in managing the risk of the banks, which its opacity. But by pushing accountability for risk management down the line, Jackson hopes the heads of the various businesses will be more accountable.

Structural measures such as the above can help with the changes in values and attitudes pursued by cultural change programs. For instance, Butcher gave testimony to a change in attitudes in City institutions following the reduction in bonus sizes: there is now less interest in bonuses among job searchers in finance; banker arrogance –the attitude that financiers are the only hard working and competent people in the country– is partly gone. Butcher’s point illustrates the remarkable and often upside-down and counterintuitive manner in which cultural change operates: employees first change behavior, and then adjust their beliefs to stay consistent. Another panelist, Jo Geraghty (Culture Consultancy), emphasized the importance of integrating the espoused changes in culture within the structure of the organization.

Paying bankers for being good?

One key challenge in adopting structural measures is to avoid crowding out –if not simply destroying– positive cultural dynamics. Treating employees as dishonest immediately reduces their ethical commitment. For instance, banks are currently introducing cultural fit into reward and promotion measures, and developing metrics that measure culture. By explicitly paying more to the bankers that appear to behave in accordance to the espoused culture, the hope is that cultural change will be advanced.

Will this work? My concern (and one echoed by my informants in New York) is that explicitly accounting for values with pounds and dollars may create a confusion that can only be detrimental. First, it attempts a reduction of the domain of the moral into the economic, but by quantifying the monetary value of “good behavior” (e.g., ten percent of the bonus) it suggests that sufficiently high profits might compensate for obnoxious behavior such as hazing new recruits. Second, this approach may also come across as too controlling and manipulative: values and norms are and need to be broad because they call for judgment in specific circumstances, and by boiling them down to hard rules the judgment is eliminated. And third, it invites gaming and cynicism, potentially reinforcing the materialist message that the only point of work is the compensation.

Bring back the partnership model?

By contrast, culture and structure come together remarkably well in Sandy Pepper’s proposal to revisit the traditional institutions of the City of London, prior to the Big Bang of 1986. Before the arrival of the large Wall Street banks, the City was dominated by traditional merchant banks. While these were far from perfect –specifically, the diversity of their workforce was close to inexistent– careers in them were structured as tournaments, partners were collectively liable for losses, turnover was much lower, and employees arguably took greater responsibility for their actions. As Pepper says, these institutions contained pay and limited the traders’ tendency (given the visibility of their contribution to the bottom line) to become irresponsible hired guns.

While it’s tempting to dismiss such interest in the 1980s as romanticizing an inexistent golden age, I have been hearing similar interest in partnerships in my recent fieldwork in New York. And indeed, the organizations that come closest to it – hedge funds and private equity firms – have been the ones that performed best despite fears, well before the financial crisis, that their small size would make them vulnerable. Partnerships relied on status differences, so to the extent that these structures come back, we can expect the return of other retro aspects that come with them: formal dress codes at work, grander facilities, perks that reinforce hierarchical differences and signal esteem. In fact, it is interesting that retro fashion and formal wear appear to be back.

The partnership model will obviously not be viable for the large banks. The key will instead be to understand how to adopt elements of it, both symbolically and structurally, and combining it with technology. One possibility would be to argue for a complete reform of investment banks that shifts risk-taking into smaller hedge funds and private equity firms. The question then is whether capital markets need large global banks willing to risk capital in moments of crisis. This is in fact also Jamie Dimon (JP Morgan’s CEO) criticism of Dodd Frank, and indeed Dodd Frank has been cited as one of the reasons for the recent Treasury bill Flash Crash of 2014. Size, in other words, continues to be a  point of contention in discussions of financial reform.

From Bill Maurer

I’m happy to announce that the book Data, Now Bigger and Better!, the outcome of a number of interrelated ISTC activities and coedited by Tom Boellstorff and myself, is now out! (

With chapters by Genevieve Bell (Intel), Melissa Gregg (Intel), Tom Boellstorff (Irvine), Nick Seaver (soon to be at Tufts) and myself, the book is “an exploration of the kinds of theoretical provocations and conceptual enframings that are so needed when, it is often claimed, the very nature of big data means that knowledge is ‘at scale’ and concepts aren’t needed any more.” Prickly Paradigm Press (which publishes through University of Chicago Press) seeks to “bring the old-time pamphlet back… writing unconstrained and creative texts about meaningful matters.” In that spirit we had a lot of fun putting the book together and I hope you enjoy it!

I am hoping to persuade the readers of Socializing Finance to submit a paper to a conference that I am co-organizing: “From Awareness to Impact: Mechanisms of Change in Responsible Investment.”

Here’s why I think the event should be of interest. For the past four years I’ve been collaborating with the Principles of Responsible Investment initiative. The PRI is a United Nations-supported coalition of the largest investors in the world, working to promote responsible investment (e.g., incorporating the social, environmental and governance factors in their investment decisions). The organization is relatively young — founded in 2005. And it’s rapidly grown large, with more than 1,300 financial organizations as signatories at present, representing $45 trillion in assets under management. As a smart promoter of field change, the PRI has traditionally drawn on the work of academics, leading to a gradual emergence of an Academic Network that organizes conferences on responsible investment every year. This Network has traditionally been governed by a Steering Committee, and in 2014 I was invited to serve as its Chair. And I’ve been hard at work for the past months.

The 2015 Conference of the PRI Academic Network will be held in London, as part of the PRI In Person Conference for investors, asset managers and pension fund executives. The academics and their sessions will be fully integrated with the executives who attend the Conference at the ICC ExCel Center — a good mix of suits and jeans, I expect. Academics will have an additional Workshop at the Systemic Risk Centre at the London School of Economics. The Conference starts on September 8th, and the Workshop will take place on the 11th.

The event will showcase research from various literatures, including finance, management, accounting, economic sociology, political economy, law, etc. As such, it is fertile terrain for researchers in the social studies of finance. We invite submissions of full papers, but extended abstracts are accepted, focusing on the following areas:

  • ESG (Environmental, Social and Governance) integration
  • Long term investment
  • ESG engagement
  • Financial performance
  • ESG impact

The conference benefits from the support of the Academic Network Steering Committee, as well as a dedicated organizing committee that includes Anna Bordon (PRI), Michael Barnett (Rutgers U.), Fabrizio Ferraro (IESE), Jean-Pascal Gond (Cass), Katherine Ng (PRI), Michael Viehs (Oxford U.), as well as myself. So… send us your paper! The deadline for submissions is 1st May 2015. Please see the call for papers here.

Medieval provocations

March 18, 2015

Provocations are great ways of studying society. Garfinkel’s breaching experiments are classical examples, as are the more recent contributions of people like Andrew Perrin who, through unexpected questions in surveys, explore in interesting ways the social organization of political cognition.

Yesterday, I had the opportunity of seeing the results of one of these provocations. Part of the coursework for my Economic Sociology workshop at LSE consists of 15-minute documentaries produced by small groups of students that, based on one of 6 possible questions, examine the nature of work in twentieth-century Britain. At least one of these questions is designed to be overtly provocative: Who deserves unemployment? Read the rest of this entry »

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 (
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.

I am always puzzled by the disconnect that exists between the training that finance executives receive, and their actual needs. MBA and M.Sc. programs train participants in financial economics and the use of financial models. This gives them the technical competence to do the day-to-day job in a bank or a fund. But while competence gives participants access into finance, anyone who’s sat on a trading room for more than a day will agree that getting ahead is not a matter of technical skill but of fitting in with the culture, having powerful allies, or mentors. Whether it is getting a promotion, being put in charge or wielding political influence, it is the soft skills that make the difference. And yet, these are nowhere to be seen in higher education in finance. With this in mind, I have assembled a one-week Executive Summer School course at the London School of Economics that addresses the gap.

The course, titled “Leadership in Financial Institutions,” incorporates training in the tools developed by sociologists and psychologists to advance a managerial career. Culture, leadership, communication, social responsibility, just to name a few. But whereas all executive management courses include these topics, the LSE course teaches with tools, cases and theories in financial settings. The difference is critical, because when it comes to learning context matters. Managing a five-people tech start-up is not the same as running a hedge fund with five employees and two billion in assets under management. Being a senior executive at Procter is not the same as managing director at Goldman. And the same goes for a learning situation. For that reason, the course focuses on bank culture, managing traders, networking in banking, communicating with shareholders, and navigating the tension between responsible investment and fiduciary duty… you get the picture.

To this end, the course brings together academics from various departments at the LSE. These include Michael Power, Professor of Accounting and renowned expert on risk. Paul Willman, Professor of Management and author of behavioral studies of traders for more than fifteen years. Sandy Pepper, Professor of Practice in Management with long professional experience in remuneration practices in the City. Connson Locke, Professor of Practice and founder of the LSE’s Behavioral Lab as well as leadership expert. And of course, yours truly. The course is aimed at executives. Runs for a week, starting on June 22nd, and registration is still open. See more details HERE. We’re having our Open Evening this coming Wednesday March 11th at the LSE. The entire faculty will be there to answer questions and meet potential applicants. I’ll be giving a presentation on my research, and there will be drinks and nibbles. Entrance is free. See more information HERE.

Moments of Valuation

March 3, 2015

By David Stark

The challenge: you have just three words to state the core premise of new work in the study of valuation. In “What’s Valuable?,” my concluding essay for The Worth of Goods: Valulation and Pricing in Markets (Aspers and Beckert, eds., Oxford University Press, 2011), I gave a try, starting with price, prize, praise. To that triplicate, I added a fourth, perform, and, in doing so, revealed that the first three were intended as verbs all along. To price, to prize, to praise, to perform. It wasn’t a bad effort, but it was a bit clumsy: prizing and praising are too similar. Yet at least I was on a good course, signaling that valuation can occur in multiple registers and not only in the market.

Moments of Valuation: Exploring Sites of Dissonance (also from Oxford University Press, 2015) offers another effort. The three word summary: value is performed. This collection (which I co-edited with Ariane Berthoin Antal and Michael Hutter) emphasizes that valuation takes place in situations. Valuation is spatially localized and temporally marked. It takes place in situ. And the papers provide detailed accounts of various sites and settings (or, more accurately, setups) in which valuation takes place. It takes place in discrete moments of time. And the papers provide rich accounts of the critical moments when evaluative attention is particularly acute: the attentive moment when a dinner guest first sips a glass of wine, the instant when a luxury perfume is sprayed into a special device allowing the customer a sense of its sillage (the scented trail left by a fragrance wearer), or the moment when the professional art appraiser is cross-examined in the courtroom witness box. As such, the book might just as well have been titled Sites of Valuation: Exploring Moments of Dissonance.

But, as with pricing and prizing, there is not really all that much new in the statement value is performed – for these ideas, if differently expressed, were already there in John Dewey’s marvelous essay, On Valuation (for a lively revisiting of those ideas see especially Fabian Muniesa’s new book, The Provoked Economy, Routledge 2014). It is for this reason that Michael Hutter and I introduce our edited book with a brief essay, “Pragmatist Perspectives on Valuation.” The entire chapter is available on my website HERE. The paragraphs below offer a little taste:

De gustibus non est disputandum. We begin, indisputably, with taste. Then we immediately make it disputatious because we challenge the dominant view in cultural sociology that taste is something one has. Taste, in that view, is primarily symbolic because it is used for social purposes to mark distinction (Bourdieu 1984). By contrast the authors in this volume treat taste not as a noun but as a verb. It is something one does. It is a social process, to be sure; but if symbolic, it is also emphatically material.

Valuation involves a tasting, a testing. The studies here reject the claim that things just “have” some value, that their taste is intrinsic to them, and that tests reveal this natural value. At the same time they also deny the claim that the taste of things is something merely “attributed” to them, and that tests then do nothing more than reveal this value. We reject the dichotomy between natural objects (for which there is nothing to do but exploit the properties of things) and socially constructed objects (for which it is enough to show their arbitrary character as the stakes in social games).

We consider that the things to be tested and tasted are not given but made, and they are transformed in the very process of testing. Furthermore, tasting them or becoming attached to them is not like choosing some gratuitous label to enter a social logic of identity and difference; rather, identities are made and transformed by them. The chapters in this volume treat people’s relationship with things as reciprocal interactions: making things and making us. As Antoine Hennion writes in his chapter: “So conceived, both operations (tasting and testing) are productive, open, and they remain tightly connected, referring less to an absolute divide between objectivity and subjectivity than to a continuous co-production of stabilization and transformation, both in the things and in our capacity to feel what they do.” (Hennion in this volume).

To the two verbs—to taste and to test—we now add another: to contest. The adage de gustibus non est disputandum is misleading, for in matters of taste there can be disputes. Taste, whether the noun is understood as the quality of a thing or as the quality of a person, can be put to tests. And these tests are themselves contested. As the chapters here detail, the trials of valuation frequently involve disputes among different measures of worth, orthogonal principles of evaluation, and contending tests of value.


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