Keep it simple

Roger Steare has some sound advice for the new regulators which includes a bit of role-play and focusing on the values that count.

When I was briefed on the subjects for this edition of Chartered Banker, I was told that they would include “the new regulators “and “shadow banking”.

So I began to consider the words we use to describe these issues. Then the disruptive thinker in me started to combine these different ideas and ponder that maybe the new regulators ought to wear black cloaks and masks and become “shadows” like comic book heroes.

Just imagine meetings in banks and other financial services firms. Someone says something that would concern one of the new regulators and whoosh, a shadow regulator appears out of thin air! Of course this would never happen in real life, but what impact would it have on our banking and financial system if people conducted business meetings as if a Shadow Regulator was listening in and could materialise out of thin air at any time? Then imagine how decisions might be made differently if a customer, an investor or a tax-paying citizen were also to suddenly appear?

Well this is a technique that I often use when helping senior executives make difficult business decisions. I get them to role-play each of these stakeholders. Without exception, these executives take on their new personae with relish and it’s amazing how quickly a better decision is argued, tested and made.

But back to the new regulators. Assuming that they will not be issued with magic cloaks and masks, what would be the right philosophy for better regulation in the future? What does the word “regulation” actually mean and where does it come from? Well it comes from the Latin word “regulus”, which means to measure. So first of all, I believe regulators should measure the decisions, and behaviours of directors and senior executives in banks. And this means the bigger decisions, including capital ratios on the one hand and customer products, services and propositions on the other.

So if I was a bank executive, I’d first be focusing on the values I’d use to make my decisions, such as fairness, prudence or care. I’d then be sure that the perspectives of each stakeholder group were properly represented either directly or through role-play to make sure that the outcomes of our discussions and decisions were both equitable and sustainable. Finally, I’d double-check that the decision-making process itself had integrity. Had we properly considered all the facts? Were we open and transparent about our intentions? Were all the key stakeholders comfortable with our final decision?

Although this approach is sometimes challenging, it’s actually quite simple. It is my experience that if you want to find something that’s not quite right, look for complexity. Human beings have this knack of avoiding hard truths in life by inventing complexity. Look at mobile phone tariffs as an example, or credit card transfer rates closer to home.

So complexity is often the result of human beings avoiding simple but hard truths. Not only do we see complexity in our banking and financial system, we also see it in regulation. So my suggestion to both bankers and the new regulators is to keep things simple and agree, for example, we shouldn’t lend money we don’t have, to people who can’t afford to repay it, to buy stuff they want but don’t need. It’s either that or prepare for your conscience to leap out of the shadows!

Roger Steare is a Corporate Philosopher and Professor of Organisational Ethics at Cass Business School, London. He can be contacted at: roger.steare@ethicability.org You can try his integrity test at www.ethicability.org

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