Good Leadership: how the public lost trust in a major UK industry, and how to reverse this [new report]

15 December 2016 -

A major new report from CMI and the Chartered Insurance Institute (CII) acknowledges the financial services industry’s many scandals, but maps out a route to a more ethical future.

Unethical behaviour and the public’s consequent lack of trust in business and institutions are having profound effects, leading to political divisions and, ultimately, a polarisation in society.

This analysis, from CMI chief executive Ann Francke, was the sobering introduction to the launch of Good Leadership, a joint report issued this week by CMI and the Chartered Insurance Institute (CII). “The exposure of rotten management cultures, customer rip-offs and skewed company priorities has sparked public outrage and undermined trust,” said Francke.

Good Leadership examines the culture, ethics and conduct in financial services, the sector that has been most damaged by scandals and ethical shortcomings. The manipulation of foreign exchange rates, PPI misselling and the collapse of banks as the sub-prime bubble burst are just some examples of an industry that at times has seemed to operate to its own rules.

Beyond financial services, a lack of ethics in business creates productivity problems, said Francke. Unethical behaviour and poor management are intertwined, and CMI research has shown such poor management to be the biggest single contributor to woeful productivity in the UK, where output per hour was 18 percentage points below the average for the rest of the major G7 advanced economies in 2014.

“People aren’t bringing their ethics to work,” said Francke. A “real fissure” is growing between middle managers - the majority of whom think that their boss sets a bad moral example - and senior managers, who often seem oblivious to the problems.

The Good Leadership report includes new analysis revealing that managers rank in the bottom quarter of employees based on how likely they are to show the ‘ethic of care for others’ at work. This means that many may suppress empathy and be unconcerned with the impact of ethical decisions on people.

Sian Fisher, chief executive of the Chartered Insurance Institute (CII) acknowledged the “erosion of trust” within financial services and called on the sector “to ‘go beyond compliance’ and drive up ethical standards within our industry.” Currently, she said, there is an erosion of pride within the financial sector; a problem in attracting talent; and persistent negative media attitude.

As a result, she said, “it is beholden on all of us in the financial services industry to call out bad behaviour.

The CII’s Royal Charter calls on the organisation “to secure and justify the confidence of the public in insurance” and Fisher stated that professional bodies and, specifically, Chartered status can play an important role in ensuring high professional standards and rebuilding public trust. “We need to work as a community of professionals,” she said.

Also speaking at the launch of Good Leadership was Philippa Foster Back, chief executive of the Association of Business Ethics (ABE), who said that “the collective behaviours of an organisation create its culture.” She recalled the story of a major bank that had to contact the ABE to retrieve a copy of the bank’s own code of ethics. “They couldn’t find their own copy!” she said. Too often in financial services, the pressure to meet unrealistic targets causes unethical behaviour, said Foster Back. Gaming the rules has all too often become the norm.

Rebuilding confidence

Despite the reputational issues facing financial services, Good Leadership maps out a future in which ethics can help rebuild confidence in the industry.

First, individuals and organisations must understand the competitive advantages of an ethical culture. Research by CMI has shown that staff in organisations where managers have a strong ethic of care, meaning they act with consideration to others, and a strong ethic of reason, meaning they think logically, perform better in terms of both staff satisfaction and the ability to attract new staff.

“There is a clear business imperative to get this right,” said Francke. She pointed to Unilever, where brands with a clear social purpose outperform others. She also cited other recent CMI research showing that there is a real correlation between organisations with high levels of internal trust and growth.

“It’s not rocket science,” said Francke. Ethical behaviours can and must be embedded. In particular, she encouraged all organisations to: embrace transparency; make it okay for senior managers to admit mistakes; have a culture where bad news can be raised without fear of recrimination; be inspiring; and have managers who bring their personal values to work.

Sian Fisher: senior leaders send strong signals to their workforce about what is expected and ensure that middle managers are engaged and empowered… Regardless of the size of the organisation, it is essential that staff feel empowered to discuss difficult issues and challenge those in more senior positions.”