Goldilocks and the Banking Bears

Sanjeev Gupta
Updated: Nov 21, 2013 11:19:15 AM UTC

Nursery tales and childhood memories have an uncanny way of coming back and haunting one.

The recent and also the not-so-recent travails of the banking sector evoked in me an unexpected remembrance of the story of Goldilocks and the Three Bears.

For those of you who did not read it or are now too old to remember, allow me to recount.

It’s about this little girl who lost her way in the forest and conveniently found herself in an empty bear`s nest where not only was there food to choose and beds to lie in but also an escape route for her when the bears came back.

The little girl, Goldilocks, somehow was spoilt enough to believe she could partake in what was clearly not hers and had the audacity to taste every soup and lie in every bed till she unilaterally could decide which one was the best suited for her.

The not too warm and the not too cold solution allowed her to then sleep in peace and once rudely awakened by the hungry and justifiably angry bears, she could also run away with no remorse, no comebacks and no censure.

The story however leaves behind a fond feeling for the errant girl and makes one believe she deserved better, the bears should have been more understanding and makes one pray that wherever she ran to, it was warm, welcoming and homely.

In other words, we all wished no harm came to her ; notwithstanding the sheer irresponsibility she showed by getting lost in the woods in the first place and then actually managing to sleep in peace after eating stolen food in someone else`s bed; with no thought given to the horror and grief her parent must have surely been going through all that time!

My banker friends might kill me for this…

But very frankly - is it any different in the banking industry?

Highly intelligent, well educated , handsomely rewarded banking professionals must look back at the events over the past decade and decide for themselves whether they are any different to Goldilocks and her escapades.

At least she had the naivety of youth on her side, and the exuberance borne out of ill-informed curiosity.

What might be the fall back for my countless  and possibly now fast dwindling banking friends?

The financial crisis of 2008-2009 and its fall out are well documented and banks in general, and some in particular, have been hauled up, closed down, heavily fined and well rebuked.

Yet the lessons remain unlearnt, perhaps?

One could perhaps try and ignore the LIBOR scandal as a one- off,  one could turn a blind eye to the pampering of nefarious activities and money laundering transactions as being isolated and the most forgiving can,  I suppose,  also dismiss the recent currency rate fixing debacle as merely being the folly of a few individuals.

But is it?

Regulators and attorney generals globally are trying their best to investigate, punish and then put new, some might call it, draconian laws in place to prevent such misdemeanor  or grand larceny from happening again.

But in an industry which is so highly interconnected and so tightly time- and process-bound, any error or action which is inherently fraudulent , has a real chance of hurting the innocents before it’s found out and cast aside.

Thus any regulatory measure , like any police action, will perforce remain backward looking, punitive but not curative and preventive.

To me it begs a fundamental question on the concept of public trust and the law of social contract.

Society cannot operate and civilizations cannot thrive if the unwritten code between human beings and between institutions, which assumes people are generally telling the truth and carrying out their responsibilities ‘trust- fully’, is broken and broken repeatedly and deceitfully.

No law can enforce it and guarantee it.

Banking  as an industry affects everyone and thus has a high level of responsibility and a moral ground to maintain for the good of the entire world.

It is a simple truth that as a pivotal industry it must therefore practice its profession from the highest levels of service and governance.

To try and escape from this recognition is akin to trying to defy gravity and downright unacceptable.

Somewhere, however,  hubris and a sense of Goldilocks-type entitlement has created a generation of bankers who seem to have forgotten the nobility of their calling.

Perhaps reinforced with the ‘too big to fail’ option now firmly in place, does the Industry now believe that crime is only when you are caught and redressing a problem is merely about paying a few billion dollars of fines and reluctantly foregoing some (sacrifice they might call it) of their incentives for some time?

This might be self defeating , being as I am a beneficiary of such aggressive reward systems in any case, to then say that the root of the problem lies in behavior and not in the rules.

Clever people will always bend and push rules, and indeed, that is the cornerstone on which human innovation is unleashed.

Putting in place too many rules to stifle and control will be like throwing the baby out with the bathwater.

That is why Mr Regulator needs to go easy.

To me the solution actually lies with the company’s Human Resource department.

The Sage of Omaha, Mr Buffet, believed that the future of a company depends on how its people are likely to behave and to find out how they will behave, one must check how they are paid and rewarded.

In a world of short-term targets and abnormally high rewards, humans can become inhuman.

Thus, the tempering of incentive structures and aligning them to a more long-term set of sustainable results will make humans revert back to the law of social contract.

It’s not about paying less ..it’s about paying well but for the right results.

Public trust has been in short supply and unless we act, as employers and also as role models to the next generation, I am afraid that the sheer force that keeps riding rough-shod over common expectations and human decency will only gather momentum.

Scientists will tell you what the outcome of an uncontrolled storm usually is.

All accidents and explosions, when analysed, usually have a set of logical explanations.

Usually those reasons are both process related and human linked.

Hence my suggestion on carrying out ‘reward reforms’ and not banking reforms.

It is a useful starting point to ensure that a corporate, its clients and its shareholders , along with its management,  all benefit from the undoubted opportunities and the genius of it staff.

But the benefits produced have to touch all equitably and hence rewards for the performers have to be linked to how that performance affects everyone who is a stakeholder and not just some of them.

And maybe, just maybe, we will have less accidents and most certainly no explosions?

Here’s wishing a Goldilocks-free world!!

The thoughts and opinions shared here are of the author.

Check out our end of season subscription discounts with a Moneycontrol pro subscription absolutely free. Use code EOSO2021. Click here for details.

Post Your Comment
Required
Required, will not be published
All comments are moderated