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Monday, 18 December 2017

Ditch the red herring of banking culture

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All this talk about banking culture misses the point, says IFR editor-at-large Keith Mullin

IFR Editor-at-large Keith Mullin

IFR Editor-at-large Keith Mullin

LIKE MANY PEOPLE, I watched the grilling of current and former UBS executives by the UK’s Parliamentary Commission on Banking Standards, which is looking into making recommendations to beef up governance standards in banking. The hearings suffered from the same dysfunctionality and lack of synchronicity as previous ones, as the two sides simply failed to connect.

And we got the same hurling of cheap insults at the bankers as being grossly negligent, incompetent, blissfully ignorant, out of touch and out of their depth. The commission’s purposely sneering disposition undermined the point of the hearings, so they served little purpose. Actually, no … hurling insults at the bankers was the purpose of the hearings.

They did focus a lot on culture. And I’ve got to say I’m a bit tired of all this talk of culture. Discussing it as something tangible that management can switch on and off frames the conversation incorrectly. I’ll go further: imposing a single driving culture in the context in which banks – and investment banks in particular – have evolved over the past 20 years is impossible. The intense regulatory and political focus on it, while understandable in theory, is futile.

Even attempting to monitor adherence to the values articulated by senior management is, in my view, unworkable because it’s so woolly. I don’t think that’s cynical; it’s realistic. The debate about banks failing to integrate and amalgamate cultures as they merge and hire, and failing to engage in proactive cultural monitoring, is rooted in the airy realms of pseudo-philosophy and has little engagement with the real world.

Of course, there have been flagrant breaches of governance and controls right across the industry and that needs attention. Marcel Rohner, one of the embattled chief executives of UBS during the financial crisis, pointed to a mechanistic reliance on risk processes that sometimes led to an abdication of self-responsibility.

Nicely put, but I don’t think it’s as simple as blaming shortcomings on bad culture perpetuated by detached senior managers. It’s frankly more of a mundane issue of how you root out the dirtbags who blag their way into your organisation and wilfully seek to break the rules. Is that a cultural issue? I’m not so sure.

One of the root causes of the issues that’s been defined as cultural in banking is that the off-take is not a mass-produced industrial widget; it’s money. The aura surrounding it is the corrupting milieu in which pursuit of making it is conducted. If money is the raison d’etre of your day-to-day existence at work and you’re ultimately successful in that pursuit, I think it dulls management or even normal human instincts and sensibilities. And it deters whistleblowers.

The deeply embedded climate of bullying, intimidation and crass arrogance is a serious industry failing

THE DEEPLY EMBEDDED climate of bullying, intimidation and crass arrogance that has been allowed to dominate areas such as trading is a long-run and serious industry failing, which I guess you could call a cultural failing of sorts. Trading, like individual sport, is an aggressive, stressful art that has always attracted Alpha types. It’s a brutal me-or-you, dog-eat-dog, eat-what-you-kill, zero-sum world. What kind of people would you want on your side in that environment?

Rohner, who I thought was impressive at the hearing, made some fascinating comments that were pertinent to the entire industry, He said UBS didn’t have a bad culture; rather, there was a lack of culture. When you grow the business too quickly and hire people from different places, he said you in effect end up hiring mercenaries. I’ve never heard it expressed that way, but it’s spot-on.

Of course acknowledging, as the bankers did, that organic growth is better than acquired growth is fine in principle but that’s not how the industry has evolved: it’s been an arms race of who can achieve global domination fastest.

What is UBS today? Think about it: in the past 15 to 20 years, it’s an amalgam of the old UBS, Swiss Bank Corp, SG Warburg, Dillon Read, PaineWebber, Kidder Peabody, O’Connor & Associates, Brinson Partners and many, many more organisations around the world. Take almost any major bank today and it’s the same story.

If in addition you add in the frenzied hiring that banks have engaged in as financial markets have globalised over the past decade and a half, all senior management can do in terms of culture is articulate required values and constantly stress what they expect of people. I’m not sure what more they can do or be expected to do.

One of the lawmakers asked if UBS had controls to monitor the culture of new hires. A great-sounding question, but again one which has no basis in the real world. I think it was Huw Jenkins, a former UBS investment bank CEO, who said the last thing a bank wants is silos with different cultures. But that’s banking defined in a sentence.

ONE POINT I would make here is it’s not just the frenzied hiring, the harried expansion, and the quest for domination that are at fault here. If you’re hiring mercenaries, having the generals chop and change all the time, as happened at UBS and pretty much everywhere else in the industry, is arguably also an issue.

Just like its competitors, UBS’s investment bank has seen a succession of executives pass through its CEO’s office. Long tenures, it seems, are a thing of the past. This is important. Andrea Orcel is at the helm now. A few weeks ago, it was Orcel and Carsten Kengeter. Going in reverse order, before that it was Kengeter and Alex Wilmot-Sitwell; Jerker Johansson; Marcel Rohner filling in; Huw Jenkins; John Costas; and Markus Granziol, who was a relative veteran with three years in the role.

When all’s said and done, banks can spend the rest of eternity discussing culture and ethics. And they can impose any number of draconian control measures. Ultimately, though, can or should cultural values ever seek to go further than “stick to the rules and do the right thing”?

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