Will 'bank' ever be synonomous with 'trust'?

I recently watched Oliver Stone's Wall Street: Money Never Sleeps, a tale about the moral hazard created by the enormous, publicly funded bail-out of banks around the world that was central to the resolution of the GFC. It occurred to me that a YouTube link to the movie could be the simplest, most accurate response to the question in the title of this piece. But then, I am an academic, so you'd expect me to have more to say.

Writing for the US National Bureau of Economic Research late last year, Michael Bardo and John Langdon-Lane observed that countries such as Australia, New Zealand and Canada, which did not have under-regulated shadow banking systems, and whose banks were less exposed to mortgage backed securities and structured investment vehicles, largely avoided the recent global financial crisis (GFC). Yet despite dodging the GFC bullet, recent media reports portray Australia's banks as being at loggerheads not only with their customers, but with their shareholders too. So why have the banks fallen out of trust and can they recover it?

A sample of UK bank customers was asked this question by PR firm Cohn & Wolfe in February 2009, during the back end of the GFC. The results were unequivocal. Half said the word that best described their bank was "greedy", while more than a third said the word was "impersonal". Only 2 per cent and 4 per cent respectively chose "ethical" and "trustworthy" as the labels they would apply to their banks. For banks to regain their customers' trust, so the respondents said, they need to put an end to excessive bonuses (48per cent), be more willing to pass on interest rate cuts (47 per cent), and demonstrate a greater transparency in how they operate and communicate (27 per cent).

The same research has not been undertaken here in Australia, or at least the results are not in the public arena, but there is more than enough in the way of media reports to demonstrate why our banks are out of favour with customers and shareholders alike.

Currently, there are no interest rate cuts to pass on. Rather, the banks have shown a great willingness to pass on interest rate rises, and then some. While most of Australia was focused on the Melbourne Cup in November last year, the Commonwealth Bank (0.45 per cent) and ANZ (0.49 per cent) hiked their interest rates significantly above that of the Reserve Bank rise on the day of 0.25 per cent. CommBank CEO Ralph Norris defended the rise as "absolutely the right decision" in the face of higher funding costs. In February 2011 though, he was trying to explain a 13 per cent increase in the bank's first half cash profit, saying that CommBank is "a profitable organisation, but not excessively so".

Clearly, Mr Norris was not to be dissuaded in his views by the findings of a local survey of 2000 investors by Colmar Brunton Research and BusinessDay in November last year, not long after the interest rate rises were announced. When asked were the banks right to raise interest rates independently of the Reserve Bank, 77 per cent of respondents (59 per cent of big bank shareholders) said no. Indeed, 77 per cent of respondents (64 per cent of bank shareholders) said they did not believe the rationale for the interest rate rise. Nearly three-quarters of the respondents (70 per cent of bank shareholders) also said that it is unreasonable for the banks to take risks when their liabilities are government guaranteed, while 7 out of 10 are looking for a new Wallis inquiry to bring transparency to all of these issues.

Meanwhile, the bonuses being paid to bankers in the US and Europe continue to capture headlines (such as, "$3m bonus for bailed-out banker"). On the other hand, reading reports that, for example, Macquarie Bank executives are disappointed with 20 per cent bonuses when colleagues in competitor banks are being paid 100 per cent, do not draw sympathetic responses.

Two years on from the worst of the GFC the evidence is that Australian banks have learned little about regaining trust, at least in terms of bonuses, interest rates and the transparency of the banks' operations.

And now the NAB has decided to "break up" with its big 4 "partners" (ANZ, CommBank and Westpac), having grown apart from them. Timed to coincide with Valentine's Day, the story behind the breakup - that the NAB has nothing in common with those other banks anymore - has been touted as a brilliant piece of social media marketing. The NAB's approach is generally seen as an attempt to distance itself from the rest of the big 4, with a "we're not like them" subtext - no doubt we shall see. Still, the response appears to be evenly divided between those who see the break-up as "good" or even "excellent", and those who are "suspicious" or who "doubt it will make a difference".

While the NAB's recent effort can be seen as an attempt to humanise itself, following the GFC, the extent to which the banks are able to recover the trust of their customers will be decided by how well they act in the interests of their customers and all their stakeholders, rather than just their senior executives and shareholders. Again, the evidence suggests that even their shareholders are uncertain about their actions, especially regarding higher interest rates.

This leads us to consider how decisions are being made in the banks.

The obvious first observation in this regard is that businesses don't make decisions – people sitting round boardroom tables make decisions. People sitting in senior executive group meetings make precedent and subsequent decisions, and people charged with the responsibility of enacting those decisions make decisions of their own in relation to the extent to which they can and should implement the directions they receive. All of these people have a personal responsibility to behave in a principled way, with integrity. It seems though, that as we have focused on notions of corporate social responsibility in this era of sustainability, we have lost sight of the personal in social responsibility.

Rather than individuals taking responsibility for the decisions in which they're involved, we see an increasing reliance on "company policy", "codes of practice", "management expectations" as the rationale (some might say rationalisation) for the behaviour of those individuals and the behaviour of the companies they constitute. Einstein said, "You can't change the environment with the same level of thinking that created it". Instead we need a rejuvenation of corporate culture that emphasises personal responsibility as the basis of principled behaviour. If the lowest standard leaders exhibit is the highest standard they can expect from the led, then this change must come from all the executives of the companies they lead, underpinned by their concern for the interests of all the stakeholders in the business.

Can business schools make a contribution? After all, many of the investment vehicles and decision processes are informed by the research of academics employed by those schools, apparently with no concern for how they may be used in the market-place. They are then presented to business students, more often than not without the benefit of a check against some kind of moral compass giving direction as to the ethics of their use.

Business schools can't teach people to be ethical, any more than they can teach people not to be lazy, greedy, envious and so on. What they can do, though, is to hold up a mirror and show people how to behave in a principled and personally responsible way, rather than relying on the excuse they were "just following directions".

The banks can recover trust in the post-GFC period, but only if they begin to make decisions in a way that is determined to reconcile the interests of all their stakeholders and the wider community in which they are embedded.