‘Preventing a repeat of the financial crisis isn’t about more business ethics, argues Gillian Tett; it’s about fewer silos’

Do bankers – or other business leaders – need to be “moral”? Are they required to be “responsible”? Those questions have hung heavily over the financial markets in the past few years. After all, the recent financial crisis inflicted an unprecedented scale of damage on the global economy and financial system – not to mention the savings and livelihoods of many ordinary people.

Moreover, it happened for no other reason than bankers deliberately developing products and financial strategies. As revelations about this risky behaviour have tumbled out it has, unsurprisingly, left many politicians and voters calling for a change in corporate culture; instead of simply chasing profit at all cost to maximise shareholder value (and banker pay) it is argued that they should pursue a more moral and responsible type of finance. What is needed, it is said, is more “ethics”.

I have some sympathy with this viewpoint. After all, if you look at the scale of financial damage created by the crisis, it is clear that something needs to change in the culture of business. And the incentive systems adopted by the banks in recent decades certainly encouraged a short-term, risk-taking culture.

However, I also have a few qualms about simply demanding that bankers become more “ethical”. After all, the term tends to be so value-laden – and relativist – that it is dangerously hard to define. What one set of players might view as ethical (say, giving money to a charity or making loans to small businesses) another group might consider to be less moral (the charity might be suspect, or those small businesses a bad credit risk.) And society already has laws and regulations that are supposed to define what is permitted, or not.

So, for my money, a better way to frame the debate is not to call for business leaders to be ethical, but to launch a fight against tunnel vision; call it, if you like, a focus on silo busting, both in terms of how companies organise themselves and how business people think.

After all, if you look back it is clear that it was tunnel vision as much as greed that lay at the heart of so many of the disasters. One reason why senior bankers could not see the scale of risky activity that their employees were engaging in before 2007, for example, was that the internal structures of banks were so fragmented.

Similarly, regulators tended to operate in such a fragmented manner that it was hard for them to track what was happening in the market as a whole. And bankers who were developing risky products tended to live within such tight little silos that they themselves found it hard to understand the consequences of what they were doing.

In hindsight – and with the benefit of looking across the financial system as a whole – it is clear that it was madness for bankers, say, to repackage risky housing loans. But, at the time, the strategy almost seemed to make sense since nobody was able to “join up the dots”, both in terms of how finance fitted into the rest of the economy and within companies themselves.

Moreover, it is not just finance that has suffered. In the world of medicine, tunnel vision is often quite literally deadly. Indeed, time and again, wherever problems have emerged in business, they have developed not simply because employees were behaving “unethically” – but also because there was a plethora of silos.

So silo busting is not just a luxury, it is an essential concept that needs to be taught to employee and corporate leaders. It does not preclude calling on company leaders to behave responsibly too; on the contrary, silo busting is often the first step. But in a world where the concept of ethics can divide, silo busting might be an easier rallying cry. Particularly since almost everybody usually suffers when tunnel vision takes hold.

19/04/2011

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