Haven’t you heard? Maybe it is not so surprising anymore, not new, not interesting — and in any case we have our own, blue and white, three times a week. What you haven’t heard about is a new report from America, in fact a survey conducted by the University of Notre Dame’s Mendoza College of Business on behalf of law firm Labaton Sucharow, polling over 1,200 financial services professionals industry in the United States and Britain on workplace ethics and related issues.
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The survey is, of course, necessary. Over six years have passed since the great financial crisis erupted, exposing a laundry list of legal and ethical failures. The public paid trillions of dollars to rescue the banks and the economy, due to the corruption of bankers, and policy makers imposed strict regulation on the financial industry to prevent theft, clean out the stables and change its culture. In addition to the new legal requirements, banks and other financial firms invested billions in “ethical training” for their staffs and built huge internal supervisory systems. Six years later, the survey came to see what changed.
How do you think the results look? The cynics among you are right: Sodom and Gomorrah with numbers. Nearly half of respondents, 47%, said they think their competitors use illegal or unethical behavior to gain an advantage. For those making over $500,000 a year, the figure climbs to 51%.
And 35% said they have personally witnessed such behavior. Nearly one-fourth of all respondents, 23%, said their work colleagues had acted illegally — twice as many as in a similar survey conducted in 2012.
Ethics? Respect for the law? Not in financial services.
One-fourth of respondents said they would illegally use insider information if they could make a guaranteed $10 million and there was no chance of being caught. Even young people were not idealistic, in fact just the opposite: Nearly one-third, 32% of employees with less than 10 years’ experience said they would agree to the crime, compared to “just” 14% for those with over 20 years of experience. In Britain, the results were even worse: There, 32% of respondents said they would probably engage in insider trading for $10 million, compared to 24% percent of their U.S. counterparts.
Lack of change
“Most disappointing is the lack of change in many of the results when compared to surveys from previous years. Despite significant energy and efforts, it appears we need to continue to think about how to improve the culture of ethics in the financial services industry and most likely, in other sectors as well,” said co-author Prof. Ann Tenbrunsel of Notre Dame. “With findings pointing to a continued disregard for ethical engagement and alarming new tactics to silence potential whistleblowers, the industry appears to be faltering in its reform efforts,” Labaton Sucharow said about the poll.
The truth is that we don’t really need this report to show how rotten banking culture has remained and to prove that the incentives are not enough to return its professionals to the straight and narrow. Last week we learned that six global banks, the largest banks in the world, admitted to manipulating currency markets and will pay over $5 billion in fines.
But what is really infuriating are the details of the compromise. The banks may be paying billions, but none of the bankers will be prosecuted and none of the banks will lose their banking licenses or have their reputations tarnished. The plea agreements are so upsetting that even pro-business news organizations used headlines that could be considered populist.
Anyone who says the situation in Israel is any better, perhaps pointing for evidence at the fact that Israel was not forced to rescue its banks in the last crisis, is wrong. We have our own corruption affairs, so many that sometimes it’s hard not to wonder whether the entire country is corrupt.
Each day last week brought more details of the Ronel Fisher affair, which really should not be named for the lawyer, but rather for the police officers he allegedly bribed, or the prosecutors, or maybe the mayors, all of them powerful public servants.
We have a former prime minister who is a convicted criminal (Ehud Olmert) who has been sentenced to many years in prison, a once and present-day cabinet minister (Arye Dery) who has returned to the government after serving time for corruption, a former chairman of the country’s largest bank who is a repeat offender (Dan Dankner) and whose cousin is being prosecuted after being ousted as head of what had been Israel’s largest conglomerate (Nochi Dankner). There’s a bank that admitted to tax fraud and paid billions in compensation (Bank Leumi), and other banks that are being investigated for similar offenses crimes (Bank Hapoalim and Bank Mizrahi-Tefahot).
There’s a sense, not entirely illogical, that under every stone lurks corruption, criminal behavior or at the very least a lack of ethics or “moral compass.”
We must admit we have a fundamental problem. The periodic adapting or regulation, legislation and even enforcement in response to the exposure of the chance discovery of this crime or another will not help. Anyone who knows how many of the large systems operate, knows that no small part of these businesses and public institutions operate follow bent norms.
Who gets screwed?
The individual person or organization tries to screw the others — their customers, their competitors, the taxman, the government. The problem is that in the end we are the ones getting screwed, every one of us. A single individual may make a few shekels when they screw someone else, but he too is screwed by the government and by all the others — and his bottom line is of course always in the red.
We may think we are not a nation of freiers, of “suckers,” but we are. We are screwing ourselves, and we are big suckers when compared to companies and countries that are less corrupt. It has already been proved beyond any doubt that countries where the rule of law, enforcement and ethics are stronger are richer, and their citizens report that they are “happier.”
The answer is “social capital.” There are those who say that it is too late, the Middle Eastern culture is fixed too deep in our souls and location. There are those who say that the lack of uniformity and the “tribalism” in Israeli society do not allow the adoption of other norms.
There are those who will claim the blame lies in the Americanization of Israeli society and the economy, while sanctifying the personal welfare over social solidarity. But these are excuses: There is a formula, well known and clear, for what works better and for what brings about greater prosperity. It is not by chance that nations with “better” norms, whose citizens prefer decision making through dialogue and consensus, succeed more than others.
But if the path to success is so clear, why have we not already adopted these norms? The simple answer is that at any given moment there are a great many people working night and day to prevent us from creating better social capital.
The corrupt, for example. They want to convince the public that everyone is corrupt, everyone cheats, and everyone is a thief. This is how they can continue on their way without fearing the law or public scrutiny. This the mechanism that reminds us of the problem of executive salaries, which are out of control: Executives want high salaries and the directors who are supposed to supervise them also want to enjoy the same norms and culture of high wages, so they sign off happily.
The report on the financial sector we started off with is just one sign of the general culture. The corruption in the financial industry stands out in particular because it is a complex industry where it is easy to take advantage of customers, and it is also more regulated and supervised than others — so the corruption and culture is exposed sometimes. But a similar culture exists in other organizations, in the public and private sectors - and there are a great many powerful bodies who are interested in making sure it stays that way.