It is difficult to know to what extent the March breeze in the UK is in any sense a wind of change. The arrival of warmer temperatures and sight of the sun after a hard winter invokes a grateful response to "weather." But is there also a welcome parallel shift in thinking when it comes to the role of business in society?
The quick response is "too soon to tell." However, there is no doubt that this role is being questioned, and that "accountability" is becoming a buzz word - fueled quietly by a sense that perhaps ethics matters for better sustainable business and that it is acceptable to champion these values.
Amid endless reports of banker's excesses - and repeatedly - bankers' plans to pay themselves huge sums of money, a few quiet bombs have exploded.
The Bank of England (BOE), the UK's central bank, last week announced that it was strengthening the proposals for bonus clawbacks in case of bad behavior. It is consulting on proposals to require all firms authorized by the UK's Prudential Regulation Authority (PRA) to amend employment contracts to ensure bonus awards that have been vested can be clawed back from individuals where necessary.
These are the conditions it laid down for such clawback:
- there is reasonable evidence of employee misbehavior or material error;
- the firm or the relevant business unit suffers a material downturn in its financial performance; or
- the firm or the relevant business unit suffers a material failure of risk management
Next it pointed out that in cases involving a material failure of risk management or misconduct, firms should consider applying clawback to those employees who: "could have been reasonably expected to be aware of the failure or misconduct at the time but failed to take adequate steps to promptly identify, assess, report, escalate or address it" or "by virtue of their role or seniority could be deemed indirectly responsible or accountable for the failure or misconduct, including senior staff in charge of setting the firm’s culture and strategy. (my emphasis).
Boom - this was the biggest quiet bomb. Accountability and ethics together, in one swoop.
The timing was also interesting. The Bank of England is calling for the proposed rules to come into effect (after two months consultation) on 1 January 2015. By calling for the rewriting of employment contracts, it appears to be translating the accountability for ethical behavior into contractual law to the maximum period permissible, just as other attempts are being made to put ethics back into banking. As Reuters made clear in its report:
"A six-year cut-off has been proposed because this is the longest period possible under British contract law. Andrew Tyrie, who chaired Parliament's Banking Standards Committee, said the rule was key to reforming pay and he looked forward to the Bank's consultation later this year on longer deferral of bonus elements than the three to five years at present."
On the same day as the BOE announcement Sir Richard Lambert, who has been asked to chair a new body on banking standards, spoke at an event at TheCityUK. It is described by the Financial Times as "an independent, cross-sector voice created in 2010 to champion the international competitiveness of the UK financial and professional services sector." Talking about how he saw this new banking standards body progressing in the establishment of trust in The City, Sir Richard stressed its independence, its lack of advocacy for banks, and the need for its board to reflect society at large, as well as bankers.
In conversation with me in front of an audience, Sir Richard cleared up some misunderstandings about his intentions: for example, ethical 'league tables' for banks were never on the cards, he said. But he said: " Banking is about to get a lot more boring - and that is fine." He spoke about going back to "real" banking with limited returns, based on real relationships and building business that is in touch with its fundamental values.
In listening to him speak, it felt once again that the distinction between individual ethics and business ethics appears to be blurring - one cannot have the one without the other. Sir Richard also confirmed that he had not known about the BOE announcement - so there was no conspiracy of intent there.
So what is going on? The focus on banking is at the crux of a wider focus in the UK about business and society. There are several events this week alone in London that focus around that very relationship, and include institutional investors, those powerful instruments for change. These events span organisations such as Tomorrow's Company and Mazars to Business In The Community.
Anyone visiting these shores would be spoilt for choice if looking for debate around some compelling issues.
It is a debate that needs to continue, for at a time of economic austerity, it includes important choices. David Blanchflower, currently Professor of Economics at Dartmouth College, New Hampshire, Economics Editor of the New Statesman, and former member of the Bank of England's Monetary Policy Committee, wrote this piece in the UK's Independent newspaper this week:
It is an exciting example of why the relationship between business and society needs a rethink for outcomes that make a difference.
