Banking bonuses were a hot topic at the World Economic Forum in Davos last week – but all they highlighted is that little has been learnt or changed in the world of banking.
George Soros told the BBC‘s Robert Peston that the payment of bonuses by banks from 2009 profits is wrong, as the profits have been built on a ‘gift’ – government bail-outs.
While Stephen Green predicts that future pay-outs will be lower and more rationally calculated, RBS this week announced it is pressing ahead with bonuses……. “Bosses at the Royal Bank of Scotland have decided to press ahead with plans that allow top performers to effectively collect large cash bonuses despite a political and public backlash about bank pay.”
So despite all the discussion and predictions, there is no evidence yet of a fundamental change in attitudes.
What we are seeing is a rush by the government to start regulating in a hurry – bushfire theory – which the cynic might say is part of electioneering. In the UK there is talk of imposing a 50% tax on any banking bonus of more than £25k. All this is likely to do is start the city game of finding loopholes to pay the bonus in different ways. These things can always be manipulated.
Enron is a classic example of how corporates can work their way round legislation. Americans had legislated to say that the audit firm should not provide consultancy so that auditors are not critiquing their own creative advice.
The advisers to Enron got round this by setting up a network of different companies and offices – but which had the same people operating from the different businesses.
In December I wrote an opinion piece for the Financial Times in which I said:
“What we have to do now is tackle the fundamental issue. There needs to be a major mind shift by those involved in the banking industry from excessive greed to justifiable profit. And business schools have a major part to play in educating the next generation of business leaders on ethical ways of conducting business.
“Educators in business schools can have the greatest impact on the way the next generation of corporate leaders think, which will be more effective than any legislation. There need to be role models who can ‘inspire’ and ‘challenge’ the current business models. We have to move away from teaching business as a science devoid of moral or ethical considerations which results in managers who lack personal reflection and values.”
Davos has proved that if we are to avoid another credit crunch, the debate must move from banking bonuses to dealing with the culture of banks and making greed unacceptable.