The much heralded appointment of a super senior compliance Tsar at Barclays, Sir Hector Sants, has ended in stress, sickness, absenteeism and finally a permanent resignation. 1
Apparently he was worn down by his attempts to improve global compliance and had clashed with some colleagues over what had to be done while the bank was mired in a slew of scandals.
Meanwhile, the Bank’s 1300 compliance staff remains behind, charged with somehow preventing yet more reputation destroying fines and scandals.
Spare a thought for poor Antony Jenkins, Barclay’s relatively new boss who is at least trying his level best to change the bank’s culture.
With his surprise appointment of the much respected Sir Hector on £3 million a year pay, Jenkins must have thought he had the beginnings of getting the compliance issue under control.
So is the remaining compliance staff up to it? In fact, is anyone at Barclays up to it? Could the basic compliance model itself be open to question?
With so many financial and other institutions, hastily hiring new armies of enforcers of company and regulatory codes, there must be some question marks over whether this is right strategy.
HSBC alone is reported to have recruited over 3000 new compliance staff in the last two or three years bringing its total Compliance staff to over 5,000. This equates to two per cent of HSBC’s global workforce.
They too carry the daunting responsibility of trying to ensure the many more thousands of staff behave responsibly, helping to prevent yet more damage to the bank. 2
Can they possibly succeed? Or will many of them and their boss also end up like Sants, as casualties of stress, burnout and failure to enforce a responsible culture?
The present compliance model relies mainly on people following the rules. It tries to ensure they at least know what is expected of them, in terms of conforming to stated norms.
This is usually backed up with robust systems to monitor compliance and punish transgressions. It all sounds perfectly sensible. Yet somehow something is clearly lacking.
The missing ingredient is what can be called “ethical engagement.” This is when people become highly committed to supporting responsible behaviour within an organisation, and includes their willingness to speak up when they spot something going wrong.
Research across many organisations suggests ethical engagement—or self- governance as one study called it—is extremely low.
Perhaps as low as 3% of all employees feel ethically engaged, and therefore willing to take the risk of speaking up about serious compliance issues.
Several major barriers exist to creating ethical engagement.
The first is the extended reliance on codes, rules and expectations that staff will do as they are told.
Daily, employees encounter ethical dilemmas—that is, issues of how to act responsibly. These are seldom neatly handled by the endless codes and instructions on appropriate behaviour.
In such situations they meant to ask their line manager or supervisor for help. Yet often the issue involves that person in the first place. Going above them, to the boss’s boss is seldom a good move.
The second barrier is lack of training. Most large organisations now do some kind of training, if only to be seen as meeting regulatory expectations. But the amount of training is minimal—seldom more than a few hours a year.
The nature of that training is also highly questionable, focusing as it does on compliance, rather than engagement.
The third barrier is a general failure by business leaders to win the hearts and minds of those they employ.
For too many people the work they are expected to do is sterile and lacking in meaning. Hardly surprising then, if they spot possible transgressions that could harm the organisation in some way many don’t bother to speak up, regardless of the threat of sanctions.
Yet another barrier to ethical engagement is the retaliation employees experience personally if they do speak up about compliance issues. According to studies by the Ethics Research Centre:
“Fear of retaliation for speaking up about ethical violations in the workplace not only affects whether workers are willing to report wrongdoing to management, it drives the level of misconduct itself.” 3
Achilles Macris, Javier Martin-Artajo and Bruno Iksil, dubbed the London Whale over the size of uncontrolled market-moving bets, did huge harm to J. P Morgan.
This occurred despite the oversight of several managers who were either aware of what was happening and failed to act, or were unaware in which case they were not managing well. As the bank’s contrite boss Jamie Dimon admitted, “it has shaken our company to the core.” 4
What Dimon did not address was why these managers failed to act. Connivance or sheer negligence are two possible reasons.
Equally likely though, was the realisation that speaking up would almost certainly prove both personally unrewarding and almost certainly career-limiting.
No More Box Ticking
Ethical engagement and its implications for the whole compliance industry has yet to fully surface. As a former global head of compliance at Rio Tinto has argued:
“Today’s companies should have moved past a ”tick the box” approach to compliance; the board papers should not be just a list of bland reports on compliance training statistics and the like. A much more in-depth analysis is needed to inform a board. And much of the information should be communicated, not only to employees, but to the company’s shareholders.” 5
Sadly shareholders remain less than enthused with the idea of investing in compliance in creating ethical engagement, or in the issue of company ethics generally.
As Stephen Howard, Chief Executive of Business in the Community told this author recently in a one-to-one interview:
“The other frustration I hear from leaders about all this ethical stuff is: “Yeah it looks great, but you know, my shareholders don’t ask me about it and my customers don’t want to pay for it.”
Until that begins to change the bosses they employ seem unlikely to take the issue of ethical engagement entirely seriously.
1 J. Treanor, Sants quits top Barclays role with exhaustion and stress, 14 November Guardian