Monday, July 14, 2014

Bankers and wealth managers take ethics oath

As the misadventures of the can-do Commonwealth Bank remind us, even though our bankers didn't bring the house down in the global financial crisis as happened elsewhere, we still had too many victims of bad investment advice losing their savings.

So, what's the answer? Tighter regulation of banks and investment advisers, or a higher standard of ethical behaviour by individuals working in banking and wealth management? Try both.

I'm not so naive as to have much faith in self-regulation, but that's not to deny that some people's behaviour is more ethical than others', nor that more individuals behaving ethically would make a difference.

When you stop believing our personal behaviour matters, that we're all mere cogs in some uncontrollable machine, it's time to slit your throat.

My guess is most people like to think of themselves as reasonably ethical, which is not to say most of us actually are at all times (not even me). Trouble is, most people make their judgments about what is ethical and what's not from the behaviour of those around then.

Moral compasses are hard to find. But that's why I'd like to see a movement initiated by Dr Simon Longstaff, of the St James Ethics Centre, the "banking and finance oath", get more publicity and more signatories. The better known are the oath and those who've signed up, the better judgments others can make about how a particular action measures up.

The oath consists of nine principles: trust is the foundation of my profession; I will serve all interests in good faith; I will compete with honour; I will pursue my ends with ethical restraint; I will create a sustainable future; I will help create a more just society; I will speak out against wrongdoing and support others who do the same; I will accept responsibility for my actions; my word is my bond.

The names of the many signatories to this oath are listed on its website, They include Glenn Stevens, Jillian Broadbent, Carolyn Hewson, Warren Hogan, Andrew Mohl and Elizabeth Proust.

Why doesn't someone ask the chief executives of the big four banks just what it is that makes them feel unable to sign up? It couldn't be a threat to their profitability, surely.

THESE days the world is positively awash with forecasts of what will happen to the economy. Treasury publishes its forecasts twice a year, the Reserve Bank publishes four times a year and a couple of dozen economists in the financial markets make their forecasts regularly and freely available.

But it wasn't always like that. Before the financial markets were deregulated in the early 1980s few economists worked in them, the Reserve kept its opinions to itself and Treasury's official forecasts in the budget papers were kept terribly vague. Billy Snedden's last budget advised that "economic growth is expected to quicken considerably in 1972-73".

When I became an economic reporter in 1974, one of the few unofficial forecasters was Melbourne University's Melbourne Institute, where the regular pronouncements of Dr Duncan Ironmonger drew rapt attention from the media.

And by then Philip Shrapnel's business selling his forecasts had been going for 10 years, meaning the economic analysis and forecasting firm BIS Shrapnel is celebrating its 50th anniversary this year.

Shrapnel, who trained at the Reserve, spent a few years working as a forecaster for pretty much the only notable management consulting firm in those days, WDScott, before going out on his own. He was a character, said to polish off a least half a bottle of scotch as he stayed up studying the documents on budget night.

A lot of the people who paid to attend his forecasting conferences - still held today - would have been there to get his forecasts and plug them into their company's annual budget. These days my guess is his company makes more of its money from its research reports on particular industries and its special focus on property and construction.

Whereas David Love's rival subscription newsletter, Syntec, made its name from its uncanny ability to read the mind of Treasury, Shrapnel was fiercely independent. Not for him the risk-averse strategy of clustering with everyone else around the official forecast.

His successors retain this approach of doing their own analysis their own way and sticking to it. Like all forecasters they've had their misses, but their independence of mind may explain some notable calls: no downturn as a result of the Asian financial crisis of 1997-98; a downturn in 2000-01 no one else was expecting; and no recession following the global financial crisis.