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That these are extraordinary times is an understatement.
Not only have consumers lost confidence in financial systems, but those working within the system share the dreaded feeling of uncertainty. The fundamentals are off and everybody is grasping for ways in which to get back to life before the crisis. But there is no going back. All we can do is reflect on how we got here and move forward. But what does it mean to move forward?
Much of the responsibility with this fiasco lies within the financial system itself. There were failures at all levels within the system – banks, brokers, regulators, government and consumers. Everybody wanted to believe the fairytale that the expansion cycle would last forever. As one executive stated, “Who wants to be the one to spoil the party?”
World leaders are involved in the difficult task of re-thinking the global financial system. Their conclusions and decisions will impact all institutions and consumers. More importantly, each one of us and every organization must re-consider the attitudes, behaviour and assumptions which we have been operating under. It’s time to re-assess our values and what we judge to be key criteria for success in our businesses and in our lives.
For over 15 years, my consulting and research has focused on trust in organizations and institutions and the boundary spanning nature of trust. Trust is a value which integrates the personal with the professional. The personal self reveals itself in the professional self when we focus on trust. We bring our values, attitudes, backgrounds and moral codes to the workplace. We compose ethics codes, professional codes, behavioural norms- many of which are driven by our belief in the value of trust. However, there are conflicting goals and values in the world of finance and commerce which makes it challenging for trust to remain and key and substantial value. How does one work primarily in the best interests of the client when the compensation structure rewards transactions? How does one work on establishing a high level of trust with the client when the system itself is under scrutiny and trust and confidence has fallen substantially?
A few years previous to this financial crisis, I conducted over 30 interviews among senior banking executives, regulators and other industry stakeholders about the meaning of trust in their organizations.. The research was the basis for my PhD dissertation on the Role and Meaning of Trust in Financial Institutions. The first day of my interviews was the day that a major scandal broke: Boston’s Putnam Investments, at the time the fifth largest mutual fund company in the U.S., was accused of hiding market timing practices. Putnam fund managers generated short-term profit but worked against long-term value for their investors. What I heard then was a foreshadowing of the credit crisis and the fall of international markets of during 2008. As my interviews revealed, the warning signs were all around, and most industry insiders saw that trouble was coming several years in advance.
Questionable practices were occurring but everybody involved was benefiting, resulting in nobody blowing the whistle. As a senior bank executive stated, “Who wants to be the one to spoil the party?”.
Those working within the industry remained in extreme denial of what was happening within and external to their business. Their view was that as long as money was flooding into the market, there was no crisis of trust. What a house of cards this denial was built upon. Whenever another person was identified as working in violation of regulations or, even worse, was accused of fraud, the common response from the industry was that these were rogue actors. Yet, “rogue actors” continued to emerge in growing numbers over the next few years.
The financial services industry was guilty of two things: Rationalization of their own behaviour, and insularity of views which disconnected them from their customers. They had no idea whether their customers really trusted them or not. They never asked. Customers played their part by not wanting to question the authority of their advisors. Did they really want to face the truth? After all, what alternative did they have? Place their money in a zero interest bank account, or stuff it under the mattress? Customers essentially held their noses and invested. Furthermore, if they did not have a trusted advisor, what did it say about their judgment in general? So they didn’t raise the issue either. The cone of silence prevailed at all levels.
It has all come to where we are today: Loss of confidence, loss of trust, and staggering market losses. This is the time for transparency, authentic conversation, honesty and humility. Those who display this behaviour have a chance to slowly regain the shattered trust of their customers. Straight talk. Honest talk. Committed talk. No spin. No rationalization. The industry messed up, and the public wants to hear the truth.