The malaise of the banking sector – will they ever learn???

As if we did not hear enough about the causes of the banking failures during the financial crisis of 2008, it seems that still hardly a day goes past without media reports about continuing banking failures and irregularities. These failures have ranged from miss-selling and tax avoidance/evasion scandals, through to the perhaps more simply explained failures of corporate strategy.

HSBCOnly today (26 February 2015) both HSBC and RBS are again hitting the headlines as a result of their failures. HSBC, which had previously been involved in foreign exchange and interest rate manipulation scandals, is now currently embroiled in a tax avoidance scandal involving the management and clients at its Swiss banking arm.

RBSRBS, a bank marjority owned by the UK taxpayer, has also been in the news today. In this case, the bank was not only reporting another year of significant losses (3.4bn), but also that it was reducing its global presence by nearly two thirds, from 38 to 13 countries. Like HSBC and many other banks, RBS has also previously been involved in previous banking scandals, which have cost investors and taxpayters £billions over the past five years.

Causal factors and resolutions

Perhaps it is not surprising to find that throughout this period, the current senior management of the banks have blamed the responsibility for these failures either on past management or current members of the divulged management hierarchy. However, this form of ‘passing the buck’ cannot hide the simple fact that there are inherent and fundamental problems with strategic and corporate social responsibility management within the banking sector.

It is all very well for senior management to apologies and promise that the system has been changed, but the regularity with which banking misdemeanours and failures have been hitting the headlines over the past five years suggests that the management are simply ‘papering over the cracks’ rather than addressing the root problems.  The question that remains is how do the banks address these problems? A brief overview of the banking failures and scandals over the past five years suggests that the problems have been related to three key areas, these being leadership, strategic decision-making and CSR enforcement.

In complex organisations such as banks, which rely heavily on a devolved management structure, effective leadership is critical to business success. One of the key foundations for leadership is the development of a robust communications and reporting process. Blaming others for the failures indicates that there have been problems with the communication structure, which therefore means it requires a complete and detailed reassessment. RBS’s move to reduce its internation presence, which appears contrary to the current move towards corporate internationalisation, suggests that there have been previous problems with its strategic decision-making process. In this case, it could be argued that the strategy had been too focused on short term gains, rather than designed to build a sustainable business for the future.  Finally, all banks in the UK are subject to CSR governance, yet the failures suggest that these policies and practices are not being complied with. Therefore, one could argue that there is a need to change the current culture of the banks from one of ‘self-interest’ to one where CSR performance and compliance becomes the paramount objective. If banking institutions wish to restore their brand reputation, all of these areas require immediate attention.

Paul is writing team manager for Re&d Ltd

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