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Newsroom & speeches
25 November 2009
I am deeply mindful that I am sharing a platform with an esteemed Bishop and two City leaders who have spoken of their profound concerns about the moral basis of business.
All three have committed their lives to the pursuit of faith, and it is a privilege to be on the same platform as them.
There has been a lot of talk of late about the relationship between morality and the City; I’m not alone in talking about the need to place values at the very heart of our financial services sector – to restore utmost good faith, nurture trust and share the joy of service in the interests of others.
Sometimes the link between faith and banks backfires. Lloyd Blankfein of Goldman Sachs recently claimed that bankers are doing God’s work. He suggested there was a social purpose in banks, helping create growth, wealth and jobs.
He seemed to some to be on a different planet to the rest of humanity; ignoring a year of record losses, of dangers and damage. Blankfein appeared to have lost sight of the impact the crisis had on ordinary people and their extreme annoyance at perceived personal excesses expressed as entitlement by those implicated.
Blankfein’s reaction was to move on to the offence, present the positive side of what banks can do for economic welfare. Yet the reality is that many people are dismayed by the continuing ‘tin ears’ of those who seem to operate with ‘a heads I win, tails you lose’ mentality.
The past twelve months have been characterised by crisis and re-evaluation. The global financial crisis has required us to stop and think.
To think about values, behaviours and the long term goals at the heart of the City’s life, and at the heart of life itself.
There has been reflection on technical issues like capitalisation, funding, liquidity, tax and regulation, but there has also been reflection on broader issues, including the role and limitations of unfettered markets in society, and ethical and moral dimensions to investment.
The Jewish and Christian faiths are rooted in values. Biblical values like generosity, honesty, fairness, responsibility, social justice, and compassion underpin your thinking and work.
At a time of crisis and reflection we need the inspiration and wisdom of such values – to get back to the essence of what is written in the texts of our great religions.
Few will disagree that banks have a crucial role in society and most understand why we needed to support the banking system with public funds. But with this crucial role comes great responsibility.
Banks and bankers must show a willingness to engage with the public when questions are asked of banks, their behaviour and their values, and answer those who ask if the right lessons have been learned (or whether we are already back to the old ways that ended disastrously for so many).
Some will quite rightly say that it is dangerous for politicians to talk of values, 'those in glass houses should not throw stones'. But I believe the conversation about values does need to be heard and the values we embrace need to be articulated and applied.
The Kelly report into MPs expenses has made proposals based on the values of fairness and transparency – and while it will may bring painful change for some – business as usual is not an option.
Whilst I sit in the Lords, and we have not yet had quite the scale of vitriol reserved for MPs, there have been failings in conduct that bring shame on our House and its work.
We need to recognize that we are meant to lead – not to follow. We need to set examples and that means that our behaviour has to be exemplary.
Just as we need such values leading to action in our politics, we need them in our banks and economic life too.
Banks must acknowledge that the values and ethics which drive their business are built on the values and ethics of wider society.
Behaviour that would be judged as reckless, abusive, or self-serving on the High Street cannot be rationalised as acceptable on the trading floors of the City.
For many, the City has been opaque, shrouded in mystery, revealing itself only to announce enormous profits or to deal with corporate or customer scandals.
Now the City is in the limelight and for the wrong reasons; rescuing the City (or banking to be precise) has been expensive and reforms are imperative in order to protect society from footing the bills of future crises and ensuring that the consequences of failure are borne by banks, their owners and creditors, rather than the taxpayer.
Imbuing actions with values means treating customers fairly; providing advice independently and objectively without distortion by self-interest; exercising prudence with other people’s money; exhibiting self-restraint; avoiding corrupting organisational purpose by personal greed or desire for power or prestige; treating colleagues and counterparts as we would ourselves expect to be treated.
It means challenging excessive risk-taking, poor decisions and egregious remuneration practises that reward the few in the good times, only to leave the taxpayer to pick up the tab in the badtimes.
May I just reflect for a moment on this most vexed issue of remuneration?
I have to confess that I am disappointed at the extent to which we are meeting opposition to change from those who have been rewarded so generously in the past.
Even in institutions that have taken huge benefits from the taxpayer, either directly or under the umbrella of the support provided to the market in funding and guarantees, there is much opposition to restraint in remuneration.
I continue to be astonished by the thickness of the skins of some with whom I speak in trading rooms and executive suites.
Failure by those in positions to affect change – Board directors, remuneration committee members and, importantly, shareholders – and show leadership towards a new culture of fairness and just reward will inevitably lead to calls for more intervention by Government and regulators.
Taxpayers feel entitled to have a view on this matter – particularly if they perceive directors are unable to strike the right balance in determining sensible remuneration practices that are calibrated to risk; or shareholders who do not appear willing or able to hold directors to account.
In a year in which all major banks have draw on and benefited from taxpayer and central bank support – some of them very significantly – public attention will focus on the decisions that boards make about bonuses.
Many banks have earned large profits this year from remarkably benign conditions, conditions created through the interventions by governments across the world, profits that owe very little to the talents and skills of individual traders or investment bankers.
These profits must surely be retained by shareholders in the business as capital to support the credit needs of customers and the economy.
I expect our major institutional investors, insurers and pension funds, to be forthright in making these points to all bank remuneration committees, and to exercise their votes if their views are disregarded.
It would be good if they made their views on this public, sooner rather than later. I would expect the clients of fund managers – pension funds trustees and others – to hold their fund managers’ feet to the fire; insisting on accountable, fair and just practice.
For these are issues for owners; government should not have cause to engage. If we have no choice but to engage, it will be because of a form of market failure.
As the Government, we know that we, the banks and industry have to act to stabilise, repair and rebuild the financial sector.
The Government has taken action to stabilise the banking sector, and is now working to reform the system.
The Banking Act, the G20 agreements, and the Financial Services Bill provide a framework.
We are introducing ‘living wills’, requiring banks to develop contingency plans and resolution strategies, and blueprints to unwind without harming the rest of the economy.
We have taken action to curb remuneration policies that encourage unmanageable or asymmetric risk, or failure to take fully into account retained risk. And we have worked with European and international colleagues to develop long-term capital standards that will protect banks and taxpayers.
But this is not enough - Government acting alone will not achieve its goals. We cannot on our own solve the problem. Regulation is necessary, but never sufficient.
Today’s audience is well placed to be part of this dialogue – perhaps to drive the dialogue - because people of faith and city workers are not opposites.
You are not city workers on a Monday and members of faith communities on a Saturday, or Sunday – you are faithful people every day of your lives. You are well placed to bring one part of your life – your religious life - to bear on another part of your life – your professional life.
So I welcome an ‘ethics and economy’ conversation, and who better to involve in this reflection and dialogue than those who are members of the historic faiths.
In a recent debate the Archbishop of Canterbury suggested three principles to guide our thinking in responding to the economic crisis and the environmental crisis. Let me repeat them:
Two weeks ago in his Theos lecture, the Chief Rabbi spoke about the role of religion in the future – he argued that ‘religious groups in the liberal democratic state must be prepared to enter into serious respectful conversations about what kind of society we wish to create for our grandchildren not yet born.’
This is the challenge that I see for CCJ and indeed for all of us – to help shape the future.
You are uniquely placed to make a difference in your workplace and in the wider City; you are in a position to make decisions that will shape the future of our banks and financial institutions.
Let your core values pervade your every action. As faith communities you have so much to offer to the debate.
Now I don’t want to convey the impression that this is easy.
Despite a couple of public momentary reflections, I find it difficult to speak about faith, and I am sure that many of you are often tempted to keep quiet when the atmosphere is hostile, or where it would be difficult to raise ethical issues when your organisation has determined to set a particular course that makes you uncomfortable.
But, has not such reticence been at least partly responsible for leading us to the very edge of the precipice?
We must do better. We cannot go back to business as usual – there must be reflection and a more critical evaluation of the way we have done things in the past.
There must be a willingness to change – for surely the facts and our values demand it.
But this can only happen if leaders, people who have influence, dare to ask the difficult questions, dare to do things differently and dare to live lives where restraint, decency, and the welfare of others are watchwords.
So as I bring these comments to a conclusion, can I suggest that as we rebuild from the economic shock, we need to find a better way to do business.
We need to renew faith in capitalism. As people working in and around the financial sector, we are charged with rebuilding the City, and we must rebuild it inspired by values of honesty and integrity.
I want to thank you for your most kind invitation.
This is a moment of great danger with threats from environmental degradation, poverty and conflict – and we know that the City and our most critical institutions have brought us to the edge of financial disaster.
We are on our way back from the edge of the precipice, but we could all still become very depressed by the challenges ahead. However, this moment also offers hope in meeting the challenges set by both the Chief Rabbi and the Archbishop, to build a better City.
