Going from Bashing to Boasting

10 Feb 2011 – Michael Sadowski

As banker bonus season winds down, a number of bank CEOs have called for an end to the bashing of their ilk. Barclays’ Bob Diamond stated that “there was a period of remorse and apology for banks and I think that period needs to be over,” while JPMorgan Chase’s Jamie Dimon opined that “this constant refrain of ‘bankers, bankers, bankers’ – it’s just a really unproductive and unfair way of treating people… People should just stop doing that.”

These gentlemen stand on shaky ground calling for an end to the critiques – two years on from the worst financial crisis since the 1930s, not much has changed in how banks operate. But, let’s agree to suspend the bashing and accept the assertions that bankers play an indispensible role in society, with a condition: that banks use their next crop of corporate responsibility (CR) reports to better articulate their accountability and contributions to society.

In the last round of bank CR reports (spring-summer 2010), “responsible finance” was the term du jour. Citigroup’s CEO asserted that responsible finance “is the driving force behind the culture of the new Citi, and it is defined by the interests of our shareholders, customers and colleagues.” And Credit Suisse’s Chairman and CEO averred that its “first priority, particularly at times such as these, is to ensure we continue to operate responsibly and successfully.”

Such statements are welcome, and indeed some banks have started to explain what responsible finance means for them, yet most fall well short. Responsible finance certainly includes things like environmental risk management and investments in communities. But while these efforts are important, they are on the periphery of what banks do at their core. Responsible finance is fundamentally about how banks run their businesses – dealing with customers and counterparties equitably, being transparent about terms and fees, making markets fairly, complying with securities regulations, scrutinizing the risk profile of new products, etc. To date, we’ve not seen any bank make a fulsome account for how responsibility plays out in all of these areas – the value that they create but also the challenges they face.

So I offer a constructive challenge to banks for their next wave of CR reports, a response to which will go much further than any environmental or philanthropic initiative to restore trust in the sector: dedicate the bulk of your reports to describe what responsibility means for your core businesses. If trading accounts for a large percentage of bank revenue, explain your responsibility as an intermediary and discuss the challenges you encounter (e.g. where do you draw the line in making markets?). If you deal in structured products, describe how you consider the systemic and societal risk in such products. If you trade or invest in commodities, explain how you add value in the chain (beyond the simple provision of liquidity or risk management) and how you think about the broader social and environmental implications of this business. And if you are feeling particularly up to a challenge, make a case study of your highest paid employee and describe how this person created value for the bank, its shareholders and society.

I offer this challenge with the strong belief that banks play an indispensible role in society, and that the time for bashing may indeed be over. Yet my hope is that banks change their mindset on what responsible banking really means and begin to boast about the ways that they add value to society through their core businesses. Any takers?