I led a talk to roughly 100 ACCA members last night on the subject ‘Surviving the Credit Crunch’. I asked who had been affected by the credit crunch: nearly every hand went up. A lady mentioned the benefit of cheaper mortgages - a fair point. There are also more bargains in the shops so I asked who had been affected positively: only three hands went up. Nearly every hand went up when asked who had suffered.
A member raised the case of Paul Moore who said he was sacked from his post of Head of Group Regulatory Risk at HBOS for suggesting the bank was growing too fast and taking on to much risk. I asked ‘who would have done the same in a similar position?’ About 80 hands went up. I asked ‘who would not?’ about 10 hands went up and I asked ‘why?’ one answered that it would be a bad career move. This is certainly very likely so I asked those who had said they would have done the same as Paul Moore if they would have done so knowing, and in spite of, the career risk: they said they would. Many people in a similar position either keep quiet or leave their job. The facts of the matter rarely come into the open.
It is reassuring that ACCA members would put professionalism above personal risk in such a situation. The Institute of Business Ethics uses the term ‘speaking up’ and I prefer that term to ‘whistle blowing’. A board should welcome people who speak up when they have genuine concerns as it can make for a more open culture, a healthier business and for better management of risk. Generally it is preferable for such ‘speaking up’ to take place within the organisation rather than in public.
It is worth remembering that the UK Combined Code on Corporate Governance has a provision that audit committees should review arrangements by which staff may, in confidence, raise concerns about possible improprieties and ensure that arrangements are in place for their investigation and follow-up.
Occasionally it may be in the public interest for things to be made public. Paul Moore’s statement to the Treasury Select Committee gives a window into the workings of HBOS. We do not know how accurate, objective or balanced his account is but last night people said that story rang true and many said they had been in similar positions. Surely the public is entitled to a more transparent window.
In spite of all that has been said and written about the banking problems, we have not yet been given a detailed or objective account of what our now nationalised or part-nationalised banks did to create their problems. After the Swiss Bank UBS announced losses of $18.7bn 2007, the Swiss authorities asked UBS to publish a detailed account to its shareholders of the reasons for the write-downs. UBS published its report in April 2008: its 50 pages are a model of clarity and paint an extraordinary picture of what went wrong. In detail it describes the losses, the business model UBS pursued, how the losses developed, the risk management and control activities and how they failed and they key findings relating to the causes of the losses.
Surely the shareholders of each of the banks to have reported major losses have a right to a similar level of transparency; and surely the tax payers now supporting banks do too. While many of the problems faced by banks are common to all, each bank has been affected differently. For example HBOS and RBS had very different business models: RBS’s mistake seems to have been buying ABN AMRO and HBOS had little exposure to US sub-prime debt but was over exposed to the UK property market. Each bank has a different story to tell – we should hear them.
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