Ethics and Company Culture

…the bankers of course deserve their [fair share of the blame] too, but it’s not healthy for us to continually berate them, not all bankers are bad. You might never hear a banker say “I’m just building up some money so I can build a state of the art homeless shelter where tramps can live in peace, safety and comfort”. But then you’d probably never hear a doctor say that either. The bankers that got us into this mess deserve to be attacked but banking on the whole is still vital to the UK economy and not all bankers are evil. Those who have been tasked with sorting out the mess deserve our support…. I don’t know who people expect to be running RBS these days – Alan Titchmarsh?

Finally some balanced commentary. Where did I get this from? Well it’s a transcript from Friday Night Comedy on BBC Radio 4. Yes Matt Forde a comedian commentating on the state of banking.

He said “not all bankers are evil”; and yet as story after story breaks of improper deals, questionable morals and shoddy treatment of customers it’s easy to doubt it. In the week of Matt Forde’s riff we’d seen the latest “exposé” from Greg Smith who denounced the corporate culture of Goldman Sachs.

But I remained convinced that not all bankers are evil; I should add a disclaimer here – I work for a bank, although not as a banker. We’ve had plenty of mud thrown at us over the last few years – not all of it justified – and the company has changed. It’s more humble and more straight-forward, I know it’s not easy to see that from the outside, but it’s very evident from the inside.

I recently downloaded a copy of “Judgment Calls: Twelve Stories of Big Decisions and the Teams That Got Them Right” and when I read chapter 8 “Mabel Yu and the Vanguard Group” a lot of what I’d been thinking fell into place. (There’s an HBR article summarising this)

Mabel Yu was not the most experienced, highly expert financial analyst in the world. But she asked a lot of questions, the right questions, and when she didn’t get satisfactory answers she refused to invest. Her decision meant that the company she worked for, Vanguard, did not buy mortgage related bonds despite their AAA rating. The managed to steer around the whole sub-prime mess, and preserved value for its clients in a time when the sharemarket was diving.

What is clear from the book is that although Mabel Yu is unusual in making the right call amongst the thousands of analysts around the world her behaviour is “business as usual” for Vanguard. Their company values are taken seriously;

• Every employee is taught that “it is a privilege and an awesome responsibility to be entrusted with the financial hopes and dreams of its customers”.
• There is a strong recommendations that analysts and portfolio managers do not invest in financial products they do not fully understand
• Vanguard promotes the view that “one person can make a difference”

These three values in particular meant that Mabel Yu felt responsible to the clients who were trusting the company with their money, motivated to fully understand the products being offered, and ultimately able to state her concerns and advise the company not to invest.

It wasn’t the first time the companies analysis was “off-trend” but ultimately proved correct; in the early 2000s the company had resisted the temptation of the technology bubble – because Vanguard does not aim to “time” the market for short term gains.

With that corporate culture set out – with the customer focus, the expectation of professionalism, and the faith that you can make a difference – it was easy for Mabel Yu to dissent, and dissent was the right decision for the clients and the company.

So how do you build that? It starts at the top. As a result of the publicity her managers expressed pride in her work, but commented there were other similar examples in the company that had not made it to the media, emphasising how normal thorough analysis and dissent are at Vanguard. The company hires for ethical attitudes, and sets out a company culture and investment practices that support that culture.

In another telling example of the frugality of the company John Bogle, the company’s founder, took Mabel Yu to lunch to thank her for her work on the mortgage backed bonds. He used the $5 reward voucher system they use to commemorate birthdays and successes within the company.