For some time now I have been asking myself why the world’s leading bankers have still been unable to talk directly to the masses in order to apologise for their role in creating a financial crisis in which so many people suffered and commit to doing their best in order to avoid the same thing happening again.
For me, this is an absolutely necessary first step in the process of restoring public faith in the banking industry. Eventually, when a colleague of mine asked me why I thought no such action had been taken it prompted me to think about this said question even more. Now eventually, I believe that I might have found a possible answer.
I am of the opinion that the Anglo Saxon culture that has so permeates the world of investment banking is simply not people-oriented enough to relate to people in the requisite manner. That lack of human empathy can be seen at work both inside these investment banking institutions in terms of how they relate to employees and managers—as well as outside in terms of how they relate to customers.
Inanimate Conversations About Human Beings
For example it is a commonly accepted belief that in order to affect real change banks must first change their culture and their behaviour. Ordinarily, one would be inclined to think that if culture and behaviours were the topic of conversation then banks would begin to have a discussion about actual people and more specifically how they should approach changing the behaviours of their employees and managers.
Unfortunately, this has not been the case. Once started, discussions on changing culture and behaviour quickly progress to how employees and managers should be monitored, controlled and sanctioned by way of new policies, additional checklists and more stringent management review systems.
Absolutely nothing is said about actual people. The industry appears to have perfected the art of the inanimate conversation about human beings.
This is indeed strange. For some reason the idea of developing values, engaging and motivating staff through those values, establishing a mission and objectives that are truly people oriented and assessing the human valued-added—all seem to be omitted from the conversation about culture and behaviours.
It is as if culture and behaviours can exist in some metaphysical entity entirely on their own without people ever being present. I attribute the cause of this erroneous ideology to Anglo Saxon culture.
The Highly Impersonal Nature of Anglo Saxon Culture
Anglo Saxon culture is by nature highly impersonal and or highly individualistic.
For example, if an Englishman asks you “how is your day?” it is not an invitation for you to tell him your problems. Irrespective of what is happening in your life you must simply respond by saying “fine” and walk on. He merely extended a courtesy, not an active interest in your well-being.
In the US, one is often led to believe that the only good conversation is one that leads to some form of monetary reward in either the short or long term. Coupled with that is a take no prisoners attitude towards competitors and clients alike—it is an industry where the term “roadkill” is frequently applied to either or both these groups.
The major US investment banks in particular have reduced the art of banking to one that is totally dependent and driven by numbers with very little thought as to actual value. Examples of this abound everywhere in the financial mathematics of the banking industry. For example, since the 1980s when Michael Milken turned the world of mergers and acquisitions upside down with junk bonds, the valuation of any entity or company has now been solely reduced to the net present value or NPV of its free cashflows—nothing else is now deemed to be of any value.
Long before Milken however, there was Modigliani Miller, Modern Portfolio Theory, Option Pricing Models and a host of other theories which pay homage to financial and economic models which the banking industry has applied in extremis—all of which have played their own role in the last financial crisis.
This reliance on mathematical models and computers is increasing rather than decreasing. For example, the US equities markets is now dominated by what is known as high frequency trading where every decision is made by powerful computer algorithms. Thus the fate of the world’s financial markets and economies could be undermined by a single software glitch or computer hacker.
Even in the apparently more docile world of personal banking is no longer very personal as with each passing year we progressively experience fewer and fewer human interactions with branch managers and their staff.
The fact is that we have an industry which is being systematically dehumanized and which to its detriment has lost sight of the need for any sort of personal communication or responsiveness.
The Dangers Of Misaligning Strategy And Culture
What does this mean for the banking industry outside the Anglo Saxon world?
Many years ago when I was working for the then ABN AMRO investment bank I asked one of my Dutch colleagues why it was that our management insisted on following the approach of the US investment banks which paid their employees very large sums of money to be more aggressive (but not necessarily any better) in their pursuit of clients and monetary rewards.
The Dutch by way of their history had a more consensual approach to banking known as the “polder model” which was built on mutual trust in respect of both management to employee relationships and dealings with clients. As a matter of fact, I had organised a number of client training sessions for ABN AMRO’s global sales and origination teams where the consistent message from those clients was that their preference was for the bank to stick to its own culture.
The point was reinforced sometime later, when the investment bank decided that instead of strengthening its traditional but profitable Treasury business it was going to jump into high yield bonds. It quickly lost tens of millions of dollars on that latter venture.
The ABN AMRO investment banking unit was later acquired by RBS in 2007—an acquisition from which the latter is yet to recover from all of six years later.
Then there is the case of UBS which fared badly when it decided that it wanted to challenge Goldman Sachs in investment banking. Not only did this UBS investment banking initiative fail it also badly impacted the wealth management business which was a prime example of Swiss traditional conservatism. It took the intervention of the Swiss central bank to save UBS from total collapse.
It would appear that proper alignment of strategy and culture is important for institutional resilience and sustainability.
There is much to admire about Anglo Saxon culture and this article is in no way an attempt to suggest that it is inferior to other cultures. As a matter of fact Anglo Saxon culture has some huge positives including a generally healthy respect for the rule of law.
However, in the specific area of banking, its inability to understand and come to terms with the human element continues to be a great weakness which if left unattended could lead to greater problems in the future. As I have stated time and time again on this blog; more regulations, more governance and more controls cannot by themselves solve the problems of the industry.
Human problems require human solutions. As long as bankers fail to recognise this then all they will be doing is devising ever more elaborate governance structures within which they will have to navigate to no good end.
There is also a very strong message and a stark warning here for other cultures—develop your own style of banking rather than play follow the leader.
Jonathan Ledwidge is the author of the book Clearing The Bull, The Financial Crisis And Why Banks Need A Human Transformation (iUniverse).