The issues CR forgot
The credit crunch has illuminated deeply irresponsible business behaviour by many leading companies, especially in the financial sector. It has also highlighted the failure of corporate sustainability to notice these chasms in corporate citizenship.
A group of leading CS practitioners gathered in our London office to consider “the issues CS forgot”. We invited Lisa Buckingham, financial editor of the Mail on Sunday and a highly experienced financial journalist, to stimulate the discussion.
Lisa described the disbelief of her readership at the irresponsible corporate behaviour – right up to board level – uncovered as the recession unfolded, especially in banking. Top of the list were executive pay, mis-selling of financial products to vulnerable customers, mismanagement of pension funds and the City’s involvement in large-scale tax avoidance.
There was general agreement that CS needs to consider the fundamental nature of a business and its products, which obviously hasn’t happened in the financial sector.
Much of the discussion centred on how to prevent companies reverting to business as usual in the upturn. The dysfunctional bonus culture in the City has survived but some guests argued that their companies were undergoing real change, for example in the way they recruit and incentivise people.
The feeling was that the level of bonuses is not the issue. The problems are huge sums rewarding irresponsibility and other employees being treated unfairly. Incentives need to be cleverer – people will mis-sell products if they are paid only to maximise sales or short-term profits.
Other ideas for preventing a similar crisis in the financial sector:
- Balance youth and experience to avoid making the same mistakes again, and make sure people aren’t promoted before their mistakes catch up with them.
- Have senior risk and compliance officers, with better risk management systems for spotting emerging risks. And make sure senior executives understand their products.
- New projects and products need to be considered by various business functions to consider their overall impact.
- On tax avoidance, companies need clear tax policies so they can explain and support their position and respond quickly to criticism.
