A recipe to stem bank hate

As bankers including Barclays' Bob Diamond lose the trust of the market, it will take more than saying sorry to restore reputations. Banks need to embrace transparency and redefine why they exist.


If the top executives at Barclays want to find a tiny crumb of hope this week, they might take a glance at IBM. Sixteen years ago, the computer group was so detested by consumers that it suffered from severe "negative branding” (meaning that its computers sold much better packaged in a plain white box than when carrying the IBM name).

But then the company restructured itself, to focus on its core "mission” of making computers. IBM is now the world’s second-highest rated brand, as Shelly Lazarus, chairman of Ogilvy & Mather advertising group, told a meeting of the Aspen Institute in the US this week.

So could a similar IBM-style turnaround occur at Barclays now? Or in the banking sector as a whole? Right now, it seems tough for Lazarus, or anyone else, to imagine. Tomorrow Bob Diamond, chief executive of Barclays, will be grilled by the British parliament over revelations that the bank tried to manipulate the London interbank offered rate, a key interest rate for banks. The encounter is likely to be brutal.

Banks such as Barclays have not just disappointed their customers in recent years, they are charged with damaging and deceiving them, too. The "negative branding” is thus on a different scale to IBM. As Lazarus says, "trust has collapsed in banks. It will be very hard to change that. It will need more than words”.

Nevertheless, as the story of IBM shows, change can sometimes occur. History also suggests that when such "rebranding” occurs it usually does so in two stages. First, companies need to display a sense of apology or penance. Second, they need to demonstrate a new sense of purpose. To translate this for tomorrow, if Barclays (or any other bank) wants to restore its reputation, a necessary first step will be to say "sorry” and offer penance (also known as resignations and pay cuts). But that is not sufficient. What is also needed is for the banks to redefine why they exist. A new sense of mission and modus operandi is required. These need to be not just implemented but also communicated to bankers and non-bankers alike.

So how might that be done? One route would be to think about three "s” words that often get ignored. The first is "stewardship”, to borrow an idea recently mooted by John Taft, a top banker at the Royal Bank of Canada. In recent years, as he points out, banks have struggled to reconcile two opposed goals and identities. Sometimes they have acted as dull utilities, charged with pushing money around the system. More recently, though, they have tried to become profit-chasing innovators, dedicated to maximising returns. Today neither goal looks satisfactory as a mission.

However, stewardship, as Mr Taft says, offers a neat alternative vision. More specifically, if bankers started acting as the stewards of the nation’s cash, which they needed to preserve and allocate in a wise and creative way, this would give them a mission that is neither achingly staid nor excessively racy. Instead of being speculators or dull technicians, banks could look almost honourable. Or at least they could if they embraced more sensible - modest - pay structures.

Second, and as a crucial part of that, bankers should embrace another "s”: "see-through”, or ultra- transparent banking. A common thread of recent scandals is that they have invariably occurred in financial corners that are opaque and clubby. Just think of the Libor debacle or the collateralised debt obligation world. This cannot be fixed just with vague promises about "transparency”, nor can it be resolved overnight.

But banks need to put far more financial activity on exchanges, become more transparent about fees, reveal the profits they reap from deals – and how they pay their bankers. They should also back initiatives to use modern technological innovations to track global financial flows in real time. After all, as Daniel Goroff of the Sloan Foundation points out, in a world where high-tech computing is so powerful it can now track fish in the sea, it should not be that difficult to monitor financial flows. Transparency is crucial for trust.

Last, bankers should fight a third "s”: "silos”. Whenever mistakes have occurred in finance in the past few years, these have usually occurred because bankers have been working in specialised ghettos, with minimal outside scrutiny. The presence of these silos makes it hard for outsiders to spot risks or abuses. But they also make it tough for insiders to retain common sense. Bankers in clubby ghettos become so gripped with tunnel vision that they fail to see the impact of their actions – or how offensive they might look. After all, as the novelist Upton Sinclair once observed, "it is very hard to make a man understand when his job depends on not understanding”. The tale of Libor is but one case in point.

Of course, implementing those "s” words will be tough. Silo-busting, transparency (see-through) and stewardship fly in the face of the current banking world. But the stakes are huge. If a company such as IBM is disliked, nobody but IBM investors and employees suffer. A loss of trust in banks, however, threatens the economy as a whole.

Over to you, Mr Diamond; instead of just saying "sorry”, try talking about being a financial steward, too. And then act as if you mean it.

Copyright The Financial Times Limited 2012.


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