The widespread breakdown of business ethics and probity is sadly a topic reported on all too frequently by the media.
Bank of America was one of the latest organisations in what feels like an unending list of businesses to be held to account over corporate wrongdoing.
The bank was fined a record $17bn (£10.4bn) for the poor quality of its mortgages, which were allegedly repackaged into securities and sold to investors. Just three US banks – Citigroup, JPMorgan Chase and Bank of America – have paid out $37bn for the mis-selling of mortgage products.
Alongside Bank of America, French investment bank BNP Paribas was fined a record $8.9bn in July for processing billions of dollars’ worth of transactions in breach of US sanctions against Sudan, Iran and Cuba.
In fact, over the past five years across Europe and the US, Ecclesiastical Investment Management put the full cost of corporate malfeasance at a conservative $150bn-200bn.
Business ethics failure seldom ‘just happens’. More often it represents a gradual erosion of behaviours over time that ultimately develop into an unethical culture. Once business ethics are no longer integral for a company, corporate misconduct becomes acceptable and tolerated within that organisation.
There is no simple cause for why this should have happened so systemically over the past few years. But there are some factors that do contribute to a firm’s loss of integrity. These include a focus on acquisition and growth rather than retention, and an inadequate focus on corporate integrity, training, customer service and appropriate product targeting.
Since the beginning of 2008, 6,000 bankers have been sacked or suspended for malfeasance, and many of the major banks have incurred significant fines for corporate misconduct. Scandals such as mis-selling payment protection insurance and Libor rigging are terms that come to mind when investors and consumers think of this sector.
Lloyds Banking Group has been the most exposed UK bank. By March 2014 it had amassed £10bn in fines.
At the time of writing, corporate malfeasance among the UK’s ‘big five’ banks has cost £25.4bn in fines – money lost to shareholders or reinvestment. At last, measures are being put in place to readdress what responsibility within the sector looks like.
Positioned as the ‘last chance saloon’ for self-regulation, the introduction of the Banking Standards Review will hopefully address banking corporate malfeasance by focusing on transparency, customer surveys, whistleblowing and more information on how customers are treated.
Although misconduct in the financial sector has the highest profile, this malaise is not confined purely to it. The energy and pharmaceutical sectors are further examples of where there has been widespread misconduct, with the former now perhaps the second most mistrusted sector after banking.
Energy giant SSE received the largest individual fine of £10.5m in April 2013 by energy regulator Ofgem for mis-selling, and it has set a further £5m aside to settle future claims.
