London, Asharq Al-Awsat – To bring about sustainable business growth again we need to fix the financial systems.
Both market-based and regulatory solutions have been implemented or are under consideration in response to the financial crisis. Legislation will not eliminate the underlying problems: it never does. Increasing capital ratios, limiting leverage, narrowing the definition of capital (to exclude subordinated debt), limiting counter-party risk, and new liquidity requirements alone are not going to solve the root causes of the problem without significant changes in professional standards and business culture. Regulation can be introduced but culture cannot be legistated for.
Two appointments in Britain captured my attention this week. They will both have a beneficial effect on financial culture with London, as one of the world’s most important financial hubs, helping in building a new consensus and confidence.
The 685th Lord Mayor of the City of London took office last weekend with the inauguration of Alderman Roger Gifford. The City of London’s first Lord Mayor was appointed in 1189.
In modern times the Lord Mayor is elected on an annual basis for a one-year term in office. The position is unpaid and apolitical. The Lord Mayor spends some 90 days promoting the City abroad and also makes a number of business-focused visits to different parts of the UK. He addresses in the region of 10,000 people each month, making around 700 speeches a year. The Lord Mayor also hosts a large number of visits by important foreign political and business figures. Another key aspect of the Lord Mayor’s role is to advise the British Government on the views of City businesses.
The new Lord Mayor, Roger Gifford, has spent most of his career working at SEB, one of Sweden’s largest banks, where he runs the London operations. The new Lord Mayor is the first banker to hold this role since before the financial crash. This Lord Mayor is not from investment banking with all those collateralised debt obligations and ‘casino’ activities. He regards himself as “a joyfully boring banker” after 30 years spent working for the dependable Swedes. Speaking about recent banking problems, he sensibly points out that the banks’ recovery will have to happen sometime. “Rehabilitation takes time but it will come because it is a natural part of the cycle. The industry made some dreadful mistakes and some silly ones but 95% of the people do very normal jobs.”
What is he expected to say when he steps off the plane in the many countries that he will visit in the next 12 months? He will say, “When people need financial services, London is a great place to come. But it is not just about coming to London; it is an assortment of factors such as Britain’s rule of law, accountancy qualifications, but also associated elements like shipping services.”
Last year we saw the Occupy movement camping out in the City. Surprisingly, the new Lord Mayor sees the upside to the Occupy movement even if it caused a severe disruption. He said on taking office, “It wasn’t good in that they came to camp around the City but it wasn’t bad in that it gave a boost to the discussion about what is the nature of capitalism going forward. That is still a very open debate. What should capitalism look like? It needs boundaries. I think a lot of the world is looking to London to see how we solve these very difficult issues of remuneration, of how much you allow institutions to sell whatever they want to sell, or how much restriction you put on balance sheets so that it is not a risk to society.”
The Swedish bank that Roger Gifford has worked for during the past 30 years does not pay bonuses — or only very occasionally. This is a bank that is almost an adjunct to industrial Sweden, rather than a bank that is doing its own thing for its own sake. Part of the rhetoric that will be built next year is about banks serving society. This will make for a good series of future discussions
The second appointment that I believe will be important in reforming capitalism is the announcement that the next Archbishop of Canterbury will be Justin Welby. The Archbishop of Canterbury is the principal leader of the Church of England, and its symbolic head worldwide.
Justin Welby has an unusual background for a religious man. Before being called to become a priest around 1990 he was the treasurer of oil exploration group Enterprise Oil. He is also a member of the British Government’s Parliamentary Commission on Banking Standards investigating the Libor interest rate fixing scandal and investigating what lessons need to be learned about corporate governance, transparency and conflicts of interest, and their implications for regulation and for Government policy. The new Archbishop of Canterbury will continue to apply the expertise he has acquired from his two careers to the overhaul of banking standards. He is regarded as likely to be a champion of banking reform and a key figure in discussions of business ethics.
His work on the parliamentary commission on banking standards was an obvious extension to his previous published works, most of which have been about the rights and wrongs of finance and management.
After 11 years working in the oil business, Dr Welby quit the industry in 1992 to pursue a career as an Anglican priest. He became a skilled mediator who has worked to resolve conflicts in Nigeria and elsewhere in Africa. He has also worked closely with the current archbishop of Canterbury, Rowan Williams as his special envoy to Africa, attempting to build unity between Christian and Muslim communities in Nigeria. He is a person who places a premium on listening and has the confidence of an astonishingly wide range of Africans. His understanding and sympathy for Islam has promoted dialogue between the two religions, and some Muslim religious leaders will talk to him when they are usually unwilling to talk to other westerners.
Britain’s banks are on the way to delivering a more “socially useful” banking system after becoming a focus for public anger in the financial crisis, Andrew Haldane, the Bank of England’s director of financial stability said last week.
Haldane told a meeting organised by Occupy, the campaign group seeking to reform finance and end social inequality, that it had played a key role in changing attitudes. “I want to argue that we are in the early throes of such a financial reformation,” Haldane told the event in London.
Appointing a religious leader with a high-level financial background and a successful record of mediation, at the same time as a new Lord Mayor with an open approach towards banking reform will add positively to these culture changes. The time for significant changes in professional standards and culture is here and in London some important changes are beginning to make a positive impact. This can only be beneficial in starting sustainable business growth again.