Thursday 25 April 2013

Ego, Ethics and High Finance: Debating the Moral Vacuum

By Tom Lloyd
Visiting Fellow to Northampton Business School


The departure in mid-April from Barclays Capital of Rich Ricci, his pockets bulging with £18m of deferred remuneration, marked the end of the Diamond age at Barclays, and the beginning of … what exactly? Normalisation; retrenchment? What was it that Barclays was putting behind it with its ejection of the last of BarCap’s notorious ‘three musketeers’ (the other two, Bob Diamond and Jerry del Missier, left last year, with similarly bulging pockets, in the wake of the LIBOR scandal)?

The official answer is that with the Augean stables of ego and greed cleared out, Barclays can get back to ‘normal’ – to an appropriate allocation of risk and reward between employees and shareholders, and to incentive systems designed to encourage staff to deliver high quality customer service, rather than high sales.

The normalisation programme launched by the new Barclays CEO Antony Jenkins is billed as a strategic review, and called ‘Transform’. It is very likely to implement the recommendations of the Salz Review commissioned in July 2012, and published in April 2013.

Although sceptics could be forgiven for dismissing the Salz Review as a whitewash job, on the grounds that Anthony Salz is executive vice-chairman of Rothschild, and thus can be expected to have a vested interest in the investment banking status quo, the review is well worth a read.

It suggests that BarCap’s extraordinarily generous bonus policy was an important contributor to the bank’s woefully unethical culture, as evidenced by the mis-selling of Payment Protection Insurance (PPI), and by attempts to manipulate the London Interbank Offer Rate (LIBOR). It comes close to suggesting that there’s an inverse causal correlation between levels of executive pay and ethical standards.

This conjecture is worth thinking about. Is it intuitively plausible for one thing; does it seem likely that extremely well paid people tend to be less ethical than average? Do extremely high levels of pay overwhelm or weaken ethical norms? Does the exaggerated sense of entitlement of Rich Ricci and his fellow ‘musketeers’ free them from  ethical standards that constrain normal behaviour? If any of these conjectures seem plausible, what can be done about it?


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1 comment:

  1. Thanks Tom as always you capture key issues so eloquently. We have discussed on many occasions the widening income gap in companies and the lack of correlation with corporate performance, but the implication that there is an inverse relationship with ethical behaviour is significant ... and worrying. More research needed here. keep up the good work!

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