102 WWhy even good people are likely to do bad things in finance – it’s not the people that are flawed, it’s the culture

Ethics in Finance, Robin Cosgrove Prize Global edition 2012-2013

Finalist

Krzysztof Osesik This paper analyses the current dards. The third part analyses the Poland state of ethics in finance, and espe- ethical shortcomings of the finan- Associate, PwC*audit cially banking institutions. The focus cial corporate culture, and the paper department, Warsaw will be on identifying the factors that concludes with some final remarks. are conducive to unethical practices. I will argue that, although financial What is ethics and scandals are ultimately triggered by why is it important? individuals, these should not bear the entire blame – for the prevai- Ethics is basically the science of ling work culture at many financial what is right and wrong. However, institutions is flawed, and directly there is no generally accepted de- encourages and rewards unethical finition of the term. When asked, behaviour and practices. This means people tend to confuse ethics with that the system will face even more their own feelings, religions, legal turmoil before long. principles or social norms (Andre & The paper begins by discussing Velasquez, 2013). For the purpose of this analysis, I will define ethical be- * The views expressed the definition and importance of herein are those of ethics in business relations. It then haviour in finance as ‘acting in a way the author and do not explains why ethical behaviour can- that promotes and strengthens trust necessarily reflect those not be ensured by more financial and confidence in mutual relations’. of the Organization he is Ethical behaviour is all about hones- affiliated to. regulation, and how too many rules can actually undermine ethical stan- ty and integrity. Its main objective is

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noPrix GB2.indd 102 16/10/2013 16:10:43 103 to promote the common good within has argued that there is an optimum society. In business, it means stri- amount of regulation for every or- ving for ‘win-win situations’. Ethical ganization. Beyond that point, extra standards do not allow abuse of per- regulation will only be damaging, as Le texte se concentre sur les institutions ban- sonal privilege through such things more effort is put into abiding by the caires et en particulier as asymmetrical information, strong rules at the expense of operational sur l’identification des bargaining power or legal loopholes. effectiveness and ethical behaviour. facteurs propices aux Ethical principles are of funda- In a recent paper written for pratiques non éthiques. mental importance in finance. This central bankers, Bank of England Il s’agit d’expliquer is because the financial sector is un- pourquoi le comporte- executive director Andrew Haldane ment éthique ne peut typical. First, unlike many other in- said ‘Modern finance is complex, pas être garanti par dustries, it offers intangible, highly perhaps too complex. Regulation plus de règlementation complex products whose quality of modern finance is complex, al- financière et comment cannot be immediately verified by most certainly too complex ... As plus de procedures customers. Second, many financial you do not fight fire with fire, you et règles nuisent aux services are by their very nature do not fight complexity with com- normes d’éthique. provided over a long period of time. plexity ... [C]omplexity ... requires Some government bonds or mortga- a regulatory response grounded in ge loans have maturities of 20 years simplicity’ (Haldane & Madouros, or more. Both factors mean greater 2012). He proved his point by com- uncertainty for the parties involved. paring the size of various pieces of The most efficient risk-mitigating legislation designed to overhaul the Dans le cadre de cette factor is thus mutual trust, which in system. The 1933 Glass-Steagall Act, analyse, le terme de turn must be rooted in high ethical adopted in response to the Great De- comportement éthique, standards. As the next section will pression, ran to a mere 37 pages, but dans un contexte show, in the absence of compliance financier, peut être secured overall financial stability for défini comme une with ethical principles, more regula- seventy years. In contrast, the 2010 action qui encourage tion can do little to boost confidence Dodd-Frank Act, intended as a legis- et renforce la confiance in financial markets. lative countermeasure to the current dans les relations crisis, occupies no fewer than 850 mutuelles. Tout repose A jigsaw puzzle of ethics pages, with some 400 more to come sur l’intégrité et l’hon- and legal compliance in the form of implementing guide- nêteté, l’objectif étant lines. The Basel I agreement, signed le bien commun au Today’s financial regulators seem sein de la société, soit to believe that systemic stability can in 1988, was only 30 pages long. By une situation win-win only be achieved by more regula- the time Basel II was signed in 2004 en affaires. tion. The fact that market confiden- the volume had increased tenfold, to ce can also be boosted by promoting more than 300 pages. The most re- ethical values appears to have been cent agreement, Basel III, signed in overlooked. The prevailing ideolo- 2010, runs to over 600 pages, almost gy is more – and ever more detailed twice the size of its predecessor. It – regulation. Yet this may actually is not just the length of these docu- make things worse. Kaptein (2012) ments that is cumbersome, but also

WHY EVEN GOOD PEOPLE ARE LIKELY TO DO BAD THINGS IN FINANCE?

noPrix GB2.indd 103 16/10/2013 16:10:44 104 their detail. As Haldane says, ‘this They simply accept the measures Les principes éthiques degree of complexity also raises se- and procedures imposed on them sont fondamentaux rious questions about the robustness (Katz-Navon, T. et al., 2005). Too dans la finance. La of the regulatory framework, given many rules will undermine ethical qualité des produits, its degree of over-parameterization’ standards, as people consult legisla- souvent très com- plexes, ne peut pas être (Haldane & Madouros, 2012). tion rather than their own conscien- immédiatement vérifiée ces when judging what is right and par les clients, tout Preliminary remarks wrong. comme les services on ethics in finance On the other hand, the solution fournis pendant de In this connection it is also im- is not to get rid of the entire regula- une longue période tory framework. Lack of regulations de temps. Il en résulte portant to realize that ethical prin- une grande incertitude, ciples cannot be enforced by legisla- and supervisory mechanisms can la confiance mutuelle tion. ‘Fencing organizations in with indeed have destabilizing effects, as devenant le facteur de procedures, systems and structures the sudden rise and fall of the deri- diminution des risques provides no guarantee that people vatives market has made clear. Ins- le plus éfficace. will do the right thing’ (Kaptein, tead, it is a matter of striking the 2012). Ethical standards stem from right balance between too little and Le fait que la confiance values and incentives that are fos- too much. Regulation is an impor- du marché puisse tered at the workplace. Many com- tant stabilizing factor, but should be être stimulée par la kept to the necessary minimum. Re- promotion de valeurs panies confuse acting ethically with éthiques a été negli- legal compliance – which are not the gulation can hardly promote ethical gée. Dans tout sytème, same thing. To understand this, take standards; but too much regulation trop de regulation, the simple question of whether sla- will certainly undermine them. au delà de la quan- very or racial segregation were ethi- The following part of the paper tité optimale, devient cal even when they were legal. discusses whether people are inhe- préjuduciable. Il ne rently good or bad. This is a crucial faut pas combattre la Today, because of the bloated issue, as different measures will be complexité avec de regulatory framework, companies la complexité. Une pay far more attention to being legal needed to ensure compliance with réponse réglementaire than they do to being ethical. Banks’ ethical standards depending on fondée sur la simplicité compliance departments employ whether people are naturally good est nécessaire. hundreds of lawyers, but hardly any or bad. The paper will then examine banks have hired ethical advisors. whether only ‘bad people’ in the fi- And extra regulation is counterpro- nance industry were responsible for Les principes éthiques the recent wave of scandal and fraud. ne peuvent pas être ductive for two other reasons. First, imposés par la legis- it can never be complete, for there Are people inherently lation. Les standards will always be gaps, grey areas and éthiques proviennent loopholes that can be exploited by good or bad? des valeurs et incita- those who are aware of them. Se- According to classic economic tions encouragés sur cond, as numerous research results theory and its homo oeconomicus mo- le lieu du travail. De have shown, more regulation actua- del, individuals derive their utility nombreuses enterprises lly reduces people’s ability to think from consumption of material goods. confondent action critically about their own actions. They are driven by rational expec-

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noPrix GB2.indd 104 16/10/2013 16:10:44 105 éthique et conformité tations and self-interest. The hap- were naturally good; unlike Hobbes, légale. Une réglemen- piness of a nation can then simply he blamed violence and conflicts tation complémentaire be measured by adding up people’s on the corrupting influence of the est contre-productive individual utilities. This theory ig- external environment, rather than car elle n’est jamais people’s egoism and self-interest. He complète et réduit le nores the possibility of synergies bet- regard critique sur ses ween individuals, and assumes that also argued that people could, and propres actions. people can only increase their utili- should, increase their happiness by ty at other people’s expense. Since cooperating with others. emotions are irrelevant and cannot The question of whether people Il ne faut pas pour be a source of happiness, there is no are naturally good or bad has exer- autant réduire la règle- room for charity or voluntary work. cised philosophers’ minds for centu- mentation et les méca- People can be just as happy on a de- nismes de supervision, ries. However, the results of recent qui pourrait créer des sert island as they can among their research on young children suggest effets déstabilisateurs. families and friends. If this theory is it is more likely that people are na- Il s’agit de trouver le correct, it follows that people should turally good rather than bad. Ha- juste milieu entre pas be inherently bad and untrustwor- mlin, Wynn and Bloom (2007) had assez et trop. thy. With limited, scarce resources, shown that children as young as La partie suivante se the easiest way for them to increase six months old are able to uncons- concentre sur le carac- their utility is to take away what al- ciously judge people on the basis of tère intrinsèquement ready belongs to others. Nor do they their behaviour, distinguish right bon ou mauvais des gens. have any interest in contributing to from wrong and, faced with a choice, the common good or well-being. have a preference for what is right. This approach is consistent with the Other research, by Felix Warneken L’utilité des indivi- views of the English philosopher and Michael Tomasello, has shown dus, guidés par des Thomas Hobbes, who believed that that children aged 18 months dis- attentes rationnelles people were extremely egoistic and play a tendency towards altruistic et leur intérêt per- self-interested, and that in the absen- behaviour. Even where the people sonnel, dépend de ce of external authority there would in need were strangers and there la consommation de biens matériels. Depuis be permanent conflict and war. was nothing to be gained by helping que les émotions ne A completely different view them, the children chose to help sont pas jugées comme was advanced by Aristotle and the them in the vast majority of cases pertinentes ni source French philosopher Jean-Jacques (Warneken & Tomasello, 2006). de bonheur, il n’y pas Rousseau. According to Aristotle, de place pour la charité Good or bad? In finance achieving eudaimonia – happiness or et le bénévolat. Les it doesn’t matter individus ne seraient self-fulfillment – required people not donc pas dignes de just to display and practice virtue However, if we accept that people confiance, mais très and excellence; external factors such are basically good, i.e. are not purely egoïstes et centrés sur as health, beauty and social ties were self-interested and can cooperate eux-même. also important. People living on with others in accordance with so- their own, in isolation from others, cial norms, where have all these fi- could never achieve eudaimonia. As nancial scandals come from? Could for Rousseau, he believed that people it be that the financial industry

WHY EVEN GOOD PEOPLE ARE LIKELY TO DO BAD THINGS IN FINANCE?

noPrix GB2.indd 105 16/10/2013 16:10:44 106 specifically attracts those few ‘bad tives’ (Cohan, 2011). Other accou- Selon une autre vision, people’, or those with a tendency to nts describe him as ‘very personable l’épanouissement behave unethically? and witty’, as well as ‘funny and en- personnel repose sur la tertaining’. Blankfein appears to be vertue et l’excellence, To analyse this, we need to look mais aussi sur des fac- at the biographies of several people much-loved at the company – ‘he is teurs externes comme who were behind some of the biggest just terrific (…) you will love him’, la beauté, la santé et recent ethical meltdowns in the fi- said one of the executives (Pressler, les liens sociaux. Le nancial sector. Enron’s last CEO, 2011). It is remarkable how someo- bonheur serait donc Kenneth Lay, was raised in a rural fa- ne with such personality traits can inaccessible à ceux qui mily and his father was a Baptist pre- run a company whose culture is des- sont renfermés sur eux cribed as ruthless and nasty. même. Les individus acher. Before joining Enron he was a seraient donc bons et navy officer and, during his time as A much more suitable person leur bonheur repose- CEO, he made contributions to cha- would surely be someone like Le- rait sur la cooperation rities and cancer treatment centres. hman Brothers’ last CEO, Richard avec les autres. He was a sociable and likable person. Fuld – nicknamed ‘the gorilla’ becau- se of his confrontational style of ma- Les récentes études ‘The employees loved him’, said one nagement. In a public speech about sur de jeunes enfants senior executive. There was nothing font état de prédisposi- to suggest he would become respon- traders who were short-selling Le- tions naturelles plutôt sible for one of the largest corporate hman Brothers stock, he said ‘what bonnes que mauvaises. scandals in America. It is almost as if I really want to do is reach in, rip L’entraide se fait de Lay had two quite different personas. out their heart and eat it before they manière spontanée 1 ‘Many … are struggling to reconcile die.’ He inspired great loyalty, but Le milieu financier atti- mostly through fear. ‘Those closest rerait les exceptions, the two images of Ken Lay. The first to him slaved like courtiers to a me- ceux qui se comport- was a personable, civic-minded mul- ment de manière non timillionaire who took the lead in ... dieval monarch, second-guessing his éthique. charity after charity ... The latter re- moods’ (Oliver & Goodwin, 2010). igned over a company ... that spaw- Another example is Kweku Ado- ned an atmosphere of arrogance and boli – a UBS rogue trader whose Il est nécessaire de se greed ...’ (Goldberg & Flood, 2002). excessive risk-taking lost the Swiss pencher sur la vie de plusieurs personnalités A similar story can be told about bank $2.3 billion. Given his back- impliquées dans les ré- Lloyd Blankfein – a Harvard Law ground, he was rather an unlikely cents scandals éthiques School graduate, and CEO of Gold- person to behave in this way. He au sein d’institutions man Sachs since 2006. Yet during his came from an affluent family; his financières, à commen- father was a senior UN diplomat. cer par Kenneth Lay, tenure Blankfein has done little or nothing to alter the company’s infa- At his prestigious secondary school dernier CEO d’Enron. Adoboli was one of the brightest Un homme très appré- mous culture (Smith G., 2012). His students – with a particular aptitude cié, mais à la double former boss said ‘Blankfein was en- for mathematics and logic. In his fi- personnalité. dowed with an unusual combination nal year he became ‘head boy’ of the of humility and self-awareness, two school. Later on, he graduated with traits not normally associated with hugely successful Wall Street execu- 1 www.youtube.com/watch?v=GZCmWkQuyPc

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noPrix GB2.indd 106 16/10/2013 16:10:44 107 honours from the University of Not- Focus on a single goal L’histoire de Lloyd tingham in computer science and One important factor that triggers Blankfein, CEO de management (Russell, 2012). At his Goldman Sachs depuis many unethical practices in finance 2006, est similaire. Un trial, people who had met him des- is the sector’s extreme focus on a sin- homm très apprécié au cribed him as an intelligent, honest, gle goal – this year’s returns. Virtua- sein d’une enterprise generous and dependable person lly the whole organization is centred dont la culture est (Croft, 2012). around generating higher turnover. décrite comme impi- Yet his actions were not very di- Banks are said to have been ‘focused toyable et rude. fferent from those of another rogue on revenues and not on other aspects trader, Nick Leeson, whose reckless of performance’ (The Economist, Richard Fuld, CEO trading lost Barings Bank $1.4 billion 2013). Pressure to achieve budgeted de Lehman Brothers and led to its collapse. Unlike Ado- plans made some banks intentiona- lly mislead their clients and jeopar- et Kweku Adoboli, boli, Leeson grew up in a working- tous deux au parcours dize long-term relationships. For class family, never graduated from a pourtant remarquable, example, Barclays was found to be university, and finished his educa- sont d’autres exemples ‘focused on revenue at the expense très pertinents. Il en tion at secondary-school level, with of its clients’ (Mustoe, 2013). Gold- va de même pour Nick only limited qualifications. His tea- man Sachs admitted it had misled its Leeson, dont les agis- chers considered him a poor student investors in failing to disclose rele- sements ont conduit and a poor mathematician (AETN à l’éffondrement de la vant information. On the plus side, UK, 2013). As for his personality, Barings Bank. however, the bank made billions out he is said to have been manipulative of these unethical transactions with and deceitful to those around him. its own clients (Nasiripour, 2011). La culture d’entreprise, Leeson described himself as cynical Such practices are widespread 2 qui prévaut au sein des and inconsiderate. across the industry. One former institutions financiers, serait en partie res- banker writes that a common ex- Why is it so difficult to pression now is ‘“IBG, YBG” – “I’ll ponsable des pratiques act ethically in finance? financières déloyales. be gone, you’ll be gone” (…) long- L’un des facteurs The previous section has shown term consequences don’t matter; all générant ces méfaits that apparently good people, as well that counts is this year’s kill.’ The est l’objectif unique de as bad people, engage in unethical fi- three most infamous rogue traders rendement propre au – Leeson, Kerviel and Adoboli – all secteur. nancial practices, regardless of their background, education or personali- defended themselves by saying that ty. I would argue that this can largely the banks encouraged them to take on more risk in order to boost po- Les pratiques visant à be blamed on the corporate culture tential profits, and that this was privilégier ses intérêts that prevails at financial institutions. standard practice at their banks. au depend des clients Below I identify and discuss the most sont très répandues au pronounced aspects of this culture In the scientific world, such sein de ces institutions. that lead to unethical behaviour in utter devotion to a single purpo- En terme scientifique, se is known as ‘tunnel vision’. It un tel dévouement finance. has been experimentally shown dans un seul but se 2 www.youtube.com/watch?v=xfdtK-B_c7c that too much emphasis on a sin-

WHY EVEN GOOD PEOPLE ARE LIKELY TO DO BAD THINGS IN FINANCE?

noPrix GB2.indd 107 16/10/2013 16:10:44 108 nomme “tunnel vi- gle goal impairs people’s ability to cile capitalism and ethics, something sion”. La concentration judge situations critically and draw many have argued is no longer possi- sur un unique objectif the right conclusions. ‘The focus ble. Capitalism is the best economic nuit à la capacité de on a goal then becomes a fixation, system mankind has so far developed, jugement critique. and other important things fall by for it increases productivity and crea- Le système actuel de the wayside. Just as with tunnel vi- tes opportunities for all. However, valeur bancaire n’a aucun avenir s’il reste sion the rest is dark, does not cou- financial institutions need to broa- en l’état. nt and is not seen’ (Kaptein, 2012). den their spectrum of objectives in The current banking value sys- order to perform their intended role Le problème ne vient tem, with its overreliance on mone- in society. In a business environment pas des banques tary aspects, has no future. To un- where there is so much emphasis on dirigées par l’argent derstand this, we must realize how achieving a single goal, ethical stan- mais des efforts que les detached financial institutions and dards are likely to be pushed aside. institutions financières financiers have become from the concentrent sur cet real economy. In an infamous inter- Intrinsic motives are unique objectif qu’il superseded by bonuses faut atteindre: la maxi- view, one trader said of the current misation des prévisions crisis ‘We do not care that much Some of the best-paid jobs in the de revenus. about the economy (…) Our job is to world are in banking and finance. Il s’agit d’une tentative, make money (…) Personally I have Average salaries for first-year analysts vaine peut-être, de been dreaming of this moment for at investment banks are $100,000 réconciliation entre le three years. I go to bed every night a year, and the managing director capitalisme et l’éthique, and I dream of another recession’. 3 is paid $400,000 or more (Rapoza, alors que l’environne- At Goldman Sachs clients were alle- 2013). However, these are only ave- ment actuel des affaires gedly referred to as ‘muppets’, and at rage figures across the industry – the tend à ignorer les internal meetings no attention was biggest firms pay much more than standards éthiques. paid to how the bank could help its that. Of the nearly 30,000 people employed at Goldman Sachs, almost Les métiers du secteur clients, but rather how it could make financier et ban- money out of them (Smith G., 2012). a thousand were paid $1 million or caires figurent parmi In my view, the problem is not more in 2008. In 2009 the average les mieux payés au so much that banks are driven by individual bonus at the same bank monde. La célèbre ten- money. It is rather that financial was estimated at $675,000 (Quinn, dance psychologique institutions are entirely focused on 2009). During his trial, rogue trader “effect d’éviction” est achieving a single goal – maximizing Jérôme Kerviel revealed that he had performed risky transactions in the ici très présente, les revenue forecasts. In the capitalist motivations intra- hope of receiving a large bonus – he system it is natural for businesses to sèques étant progressi- had expected to net €600,000 for his pursue higher sales; but our world vement dominées par 2007 results (Benedetti-Valentini, has become too complex and inter- celles extrinsèques. 2008). Wall Street bankers grew so connected for us to concentrate all Le sens de la moralité, accustomed to large remunerations our energy on a single goal, with litt- l’égalité et la contri- that in 2009, amid huge losses and bution à la société ont le or no regard for other aspects. This multi-billion bailouts with taxpayers’ été remplacées par les paper is a modest attempt to recon- money, they granted themselves a to- hauts salaires et autres 3 tal bonus of $18.4 billion (Shnayer- primes. Goldman Sachs Rules the World’, www.you- tube.com/watch?v=CTE6nXyKSnQ son, 2009).

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noPrix GB2.indd 108 16/10/2013 16:10:44 109 A well-known phenomenon in CEO Lloyd Blankfein that bankers psychology is the ‘crowding-out are doing ‘God’s work’ has been re- effect’, whereby intrinsic motives are peatedly criticized, and condemned gradually pushed aside by extrin- (Phillips, 2009). According to an L’analyse de l’image de sic motives for taking a particular internal Barclays report, ‘a few in- soi et des egos déme- action. In the case of bankers’ huge vestment bankers seemed to lose a surés est importante à considérer dans le cas salaries, monetary rewards may well sense of proportion and humility’ de pratiques finan- have suppressed such intrinsic mo- (Treanor, 2013). A feeling that you cières déloyales. Les tives as a sense of morality, equality are not bound by the rules leads to employés de banque or contribution to society. In other disregard for normal standards, and perdent progressive- words, financiers might in all cons- has surely led to some of the unethi- ment le sens de la pro- cience prefer to be involved in more cal practices at financial institutions. portion et l’humilité. socially beneficial projects – but their There are at least four sources of Plusieurs raisons decisions will be affected by the pros- such exaggerated self-esteem. First, expliquent cette pect of large bonuses. many of these institutions are ‘too tendance: La grande taille des institutions This phenomenon has been re- big to fail’; this gives them an upper financières, l’efficacité searched by David Greene, who offe- hand in relations with regulators and des lobbies du secteur, red his students a reward for stud- the general public, who have to pay le train de vie luxueux ying harder. However, once he took close attention to what banks say and de nombreux employés the reward away, the students stu- do. Second, the financial sector has et la dépendence de died less than they had done to start one of the largest and most effecti- nos vies au secteur with (Greene, Sternberg & Lepper, ve lobbies. For example, in the early financier qui gère tout. 1976). Essentially, their efforts were 2000s they proved very effective at driven by the reward rather than by making sure the derivatives market the wish to study in its own right. By remained unregulated. In 2011 the the same token, bankers are driven US financial sector spent nearly $500 by their bonuses rather than by what million on lobbying (Opensecrets, they do, and why. 2011). Third, high levels of remune- ration and luxurious lifestyles have Self-image and inflated egos convinced many that their privileged status is justified. Finally, all of our Another important factor when lives are affected by finance, but only analysing the sources of unethical a few of us really understand it. It is practices in finance is self-image, only the bankers that actually know or what has been called the Galatea the sector inside-out, and this gives effect. The theory is that people’s them a sense of power and authority. ideas about themselves can greatly As one trader famously said, ‘gover- affect their actions and attitudes. nments don’t rule the world – Gold- Bank employees are seemingly often man Sachs rules the world.’4 convinced that they are not bound by society’s normal standards. One Here it is also worth mentioning former investment banker has talked a contrary phenomenon known as about an atmosphere of ‘inflated 4 Goldman Sachs Rules the World’, http://www. egos’. A comment by Goldman Sachs youtube.com/watch?v=CTE6nXyKSnQ

WHY EVEN GOOD PEOPLE ARE LIKELY TO DO BAD THINGS IN FINANCE?

noPrix GB2.indd 109 16/10/2013 16:10:44 110 the Pygmalion effect. This concerns vision mentioned earlier: it impairs how individuals are perceived and people’s ability to judge situations L’effet Pygmalion expected to behave by others. Ac- from a different perspective. An ex- est un phénomène cording to the 2013 Edelman Trust periment conducted by John Darley contraire, qui repose and Daniel Batson has shown that sur la perception Barometer, financial services have des autres et leurs been the least trusted sector for three people tend to focus so much of attentes en matière de years in a row (Edelman, 2013). The their energy on deadlines that they comportement. Les problem is that if the general public fail to assess situations properly and services financiers sont thinks bankers are untrustworthy respond in the right way (Darley & ceux qui inspirent le there is – according to the theory – a Batson, 1973). moins confiance. Selon higher likelihood that they actually Banks are known as places where cette théorie, si les will be. Other people’s expectations gens pensent que les you need to put in a lot of working banquiers ne sont pas lead them to act accordingly. For hours. According to one former bank dignes de confiance, example, the Pygmalion effect has employee, ‘You do not know how alors la probabilité played a part in many recent ac- hard you can work, short of slavery, est forte pour qu’ils le counting frauds. One reason why unless you have been an investment deviennent. financial statements at HealthSouth banker (…) It is not merely the or Enron were falsified was to meet hours, but the extreme and unrelen- La pression du temps market analysts’ high expectations ting time pressure’ (Smith Y., 2010). est un facteur impor- (Associated Press, 2006). Another Normally, a typical working week tant qui explique aussi les pratiques non example is the Greek government, is 70-80 hours (Comstock, 2010); éthiques. Il nuit à la which asked Goldman Sachs to help when necessary, however, this can capacité de prendre it conceal the true size of its debt increase to 100 hours or more. du recul et de juger (Balzli, 2010). If the Greeks had not de manière objec- expected Goldman Sachs to be able Internal competition tive. Dans certaines to help, they would have never ap- Another element of corporate banques, la semaine de proached the bank, and the bank travail comprend 70 culture at financial institutions that would never have had the opportu- à 80 heures et parfois is conducive to unethical practices jusqu’à 100 heures. nity to act unethically. is extremely intense internal rivalry. Research has shown that mid-level La très forte compé- Time pressure competition can be very useful in tition interne est un A fourth element conducive to the workplace; but too much rivalry autre facteur expli- unethical practices at financial insti- has been found to prompt people to quant l’avènement de cheat and bend the rules. This es- pratiques déloyales. tutions is time pressure. Tight sche- pecially holds true in environments Trop de rivalité interne dules are often beneficial, as they incite les gens à tricher make people work harder and more where winner-takes-all reward sys- et à contourner les efficiently. However, working under tems are applied. When people are règles, la course aux constant deadlines with no time to faced with the prospect of failing primes ne faisant reflect on what you are doing comes to secure the first prize, their ethi- qu’accentuer cette at a cost. This may seem strange, but cal standards are likely to be cha- tendance. in fact constant time pressure has llenged and indeed compromised. much the same effect as the tunnel Jobs in finance are known to be

FINANCE & THE COMMON GOOD/ BIEN COMMUN

noPrix GB2.indd 110 16/10/2013 16:10:44 111 highly competitive. According to an ternal reasons for fierce competition. independent report on the culture at The first is that a large number of fi- Barclays, ‘winning at all costs comes nance and economics graduates enter Les institutions finan- at a price: collateral issues of rivalry, cières entretiennent the labour market each year. Since fi- cette compétitivité via arrogance, selfishness and a lack of nance offers above-average salaries, des méthodes d’éva- humility and generosity’ (Treanor, many seek careers in this sector. The luation éreintantes et 2013). Enron’s culture was also ba- second reason is that finance is a very extrêmement difficiles. sed on constant conflict and com- homogeneous environment. Finan- La forte remuneration petition. The company developed ciers’ personalities, work cultures, n’est plus le moyen the most gruelling and harsh eva- skills and abilities are very similar; d’acquérir des biens de luation systems in the US, and each almost the only differentiating factor consommation mais year 10-15% of employees were fired une donnée essentielle is experience. This makes compari- de sa propre image because of their low performance grades (Thomas, 2002). In financial son and internal replacement easier. avec la reconnaissance Moreover, since corporate cultures comme objectif ultime. institutions future employment is seldom guaranteed. Managers hold are almost identical across the in- constant feedback sessions, and the dustry, it is easy to recruit people poorest performers are quickly fired. from another companies. The third At the same time, most banks pu- factor that boosts internal rivalry is blish motivational rankings of their the fact that employees’ results are best employees. Moreover, internal easily comparable in terms of reve- hierarchy – the ‘corporate ladder’ nues generated for the company. Trois raisons externes – is used to entice employees with expliquent cette prospects of quick promotion. Bank Lack of true diversity constante compétition: employees tend to be strong-willed or strong individuals le secteur attire tou- and career-oriented. The rules for A final challenge to ethical stan- jours plus d’étudiants, being promoted are usually laid out il est très homogène au dards is that working environments at clearly in internal documents, so that niveau du profil de ses people are in no doubt about what financial institutions are very homoge- employés, et en fin les neous. Companies impose strict rules résultats des employés is expected of them. What makes sont très facilement internal competition even fiercer is and regulations on their employees to comparables. that many financiers no longer just ensure similar attitudes and thinking see their annual remuneration as a patterns. Goldman Sachs employees means of meeting their consumption were strictly forbidden to talk to the and living requirements, but as a key press, could not party in public in part of their self-image. They pur- groups of more than twelve, and were sue higher bonuses in order to win told what kinds of clothes were and recognition and build self-esteem. 5 were not acceptable at work (Com- There are also at least three ex- stock & Wachtel, 2011). At Lehman Brothers, allegedly, people were fired 5 ‘Ethical risks: why do good people end up doing bad things?’, http://www.youtube.com/ because they wore the wrong clothes watch?v=XtFiHb_c6n4 and were told which charities to sup-

WHY EVEN GOOD PEOPLE ARE LIKELY TO DO BAD THINGS IN FINANCE?

noPrix GB2.indd 111 16/10/2013 16:10:44 112 port. 6 Employees are expected to show a luxury life, is money-oriented and Le manque de per- limitless commitment to the company. only has friends that work at the same sonnalités fortes et de ‘It wasn’t uncommon to ask associates bank. véritable diversité, qui to reschedule their weddings’ (Smith caractérise le secteur, Three separate experiments by Phi- est un challenge pour Y. 2010). A former intern at Goldman lip Zimbardo (Zimbardo, 2007), Solo- les standards éthiques. Sachs says her internship at the bank mon Asch (Asch, 1955) and Stanley Les enterprises was ‘deeply upsetting’ and she felt Milgram (Milgram, 1963) have shown formatent les collabo- ‘indoctrinated’ (Wachtel, 2011). Yet that people are very liable to adopt the rateurs pour qu’ils pré- many bankers do not hesitate to talk norms and actions imposed on them fèrent leur employeur à about their love for the company. It is by their environment, their peer group leur propre famille. as if the institution has actually repla- or a higher authority, without thin- ced their families. king much about what these really Les employés recrutés The first stage in creating and main- stand for. This is especially true of in- doivent rentrer dans le taining homogeneity, commitment dividuals who lack self-esteem and see moule pour maintenir and subordination among employees themselves as a product of their envi- la meilleure homogé- is the recruitment process. Top in- ronment rather than a driving force. A néité possible. Chaque vestment banks typically only target junior banker who lets himself be told recrutement peut graduates from a very limited number what to wear and which charities to inclure jusqu’à une support, and cannot even decide his dizaine d’entretiens of schools. The recruiters’ main job own wedding date, certainly fits this pour flatter le candidat is to assess whether a candidate fits et le rendre encore plus into the corporate culture. 7 They also pattern. dévoué à son enter- look for ‘money-mindedness’, as well Ethical standards are more likely prise. as ‘hunger and drive’. Before making to be violated in such a homogeneous a job offer, top banks will have up to and highly loyal corporate culture, ten interviews with the best candida- since everybody is expected to toe the line and not ask too many ques- Des études montrent tes. This is not so much to learn more que les individus about them as to make new employees tions. In fact, everything depends adoptent très facile- grateful for the opportunity they have on whether a few top executives can ment les normes et been given by being hired, and thus to set a good example, for middle-level actions imposés par increase their loyalty and commitment bankers simply adopt the norms and leur environnement to the firm. The notion of diversity at behaviours that trickle down through professionnel. investment banks is also a myth; it is the organization. Les standards éthiques only a slight exaggeration to say that ont tendance à être Conclusions plus facilement everybody graduated from a top busi- enfreints dans des ness school, passed CFA exams, lives The finance industry is a key ele- environnements ment in getting the economy back on 6 Lehman Brothers “Terrifying” Culture Ex- homogènes avec une posed…’, www.huffingtonpost.com/2010/03/22/ track. It has never been bigger and forte loyauté propre à lehman-brothers-terrifyin_n_508594.html more important than today. With its la culture d’entreprise. 7 ‘Overview of the Investment Banking Ana- size, however, comes responsibility. L’exemple donné par lyst Recruiting Process’, http://investment- Financial institutions failed the test les cadres supérieurs bankingjobsguru.wordpress.com/2008/08/22/ of the 2008 financial crisis. Since est donc déterminant. overview-of-the-investment-banking-analyst- recruiting-process/ then, owing to banks’ stubborn resis-

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noPrix GB2.indd 112 16/10/2013 16:10:45 113 tance, very little has changed. Every individuals, describing them as gre- L’industrie financière so often yet another story of fraudu- edy, arrogant risk-takers – and over- est un element clé pour lent practice comes to light. looking the shortcomings inherent remettre l’économie sur pieds. La responsa- Banks’ flawed corporate culture in the system as a whole. • bilité est devenue une has played a negative role in the re- donnée essentielle. cent crisis, and swift action must be La culture d’entre- taken to remedy it. I hope the above prise très critiquable a joué un role négatif diagnosis of its most fragile points dans la crise récente. will prove a useful contribution. The Une action rapide est paper’s final conclusion is that the indispensable pour y public is often too quick to blame remédier. Nous avons tendance à blamer les individus au lieu de References s’intéresser aux lacunes du système pris dans AETN UK (2013). Nick Leeson: Rogue fein came from. Retrieved from mana- son ensemble. Trader. Retrieved from www.crimeandin- gement.fortune.cnn.com/2011/04/21/ vestigation.co.uk/crime-files/nick-leeson- where-blankfein-came-from/ rogue-trader/biography.html Comstock, C. (2010). Goldman Andre, C. & Velasquez, M. (2013). Sachs’s Alison Mass: I Work 70-80 What is Ethics ? Retrieved from www. Hours, I Have 2 Kids, I ‘Non-Profit,’ scu.edu/ethics/publications/iie/v1n1/wha- And I Work Out. Retrieved from tis.html www.businessinsider.com/goldmans- alison-mass-2010-7#ixzz2Ujrc51Dw Asch, S. (1955). Opinions and social pressure. Scientific American , 193, 31-35 Comstock, C. & Wachtel, K. (2011).15 reasons you do not want Associated Press (2006). Enron wit- to work at Goldman Sachs. Retrieved ness: executives fudged numbers. Retrie- ved from www.sptimes.com/2006/02/02/ from www.businessinsider.com/gold- Business/Enron_witness__Execut.shtml man-sachs-job-sucks-2011?op=1

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