Rules

Whenever a damaging event occurs, the government comes under pressure to introduce new laws to make sure that 'it can never happen again'. The new regulations announced today by the UK government are a response to public outrage at the financial disaster brought about by risky behaviour in the major banks.

But are these changes a good move? Or will they cause more problems than they solve? Whatever system is in place, creative people will find a way round it. Procedures put in place by a few people in a short time can't be expected to defeat an onslaught, over a long period, from a large number of creative people. And the very fact of having rules tends to suggest that everything not specifically forbidden is allowed.

Stephen Green is Chairman of HSBC, the largest private bank in the world. He is also an Anglican priest. He said in March 2009:

"Underlying all these events is a question about the culture and ethics of the industry. It is as if, too often, people had given up asking whether something was the right thing to do, and focused only on whether it was legal and complied with the rules."

What he is saying is nothing new. Back in 2003, James Schiro, CEO of Zurich Financial Services, wrote:

"The recent corporate failures and accounting scandals did not happen because of a lack of detailed rules on corporate governance. They happened because people who were supposed to be responsible had lost their bearings. Nothing can replace sound judgment, ethical behaviour and credible action. These are the fundamental ingredients of trustworthiness."

Trust

The UK public has also been outraged by the expenses claimed by Members of Parliament, as revealed by The Daily Telegraph. Many MPs were found guilty of beating the system. Worse still, they were testing the limits of a system that they themselves had devised. One after another, they appeared before the media to defend their claims, repeating the mantra, 'What I did was within the rules.' In the end, many were forced to recognise that what they had done was wrong, whether or not it had been within the rules. Large sums of money were paid back and there were resignations.

Trust and respect are not earned by following rules and avoiding risks. They come from pursuing ethical behaviour when there are no rules, or even by breaking the rules in order to do the right thing. Systems are indispensable in a complex society but they don't absolve us, as individuals, from making moral choices.

Honesty

I would go further than Stephen Green, when he questions the 'culture and ethics of the industry'. I believe that the banking industry only reflects the culture and ethics of the society in which it operates. Yes, the sums of money involved are eye-watering but the same values operate at the bottom of the scale. I recently ate at a restaurant in England and enjoyed a good meal with beers. When the bill came, it didn't include all the beers we had actually consumed. I pointed this out to the waiter and asked for another bill. My companion seemed surprised and gently mocked me for being so morally fastidious. I told him the following story about a recent experience in Switzerland.

My wife and I ate at a restaurant, paid the bill and left. When we got home, I looked at the bill and was annoyed to see that we had been overcharged. The next day, despite my scornful discouragement, my wife took the bill back to the restaurant. They were delighted to see her and were happy to refund the amount charged in error. Apparently, they had charged us for some food that had been served to another customer. He had pointed out the error when he received his bill and insisted on paying for it. Meanwhile, we had already paid for the same item and left the restaurant. The restaurant staff were distressed at having charged two customers for the same food.

Without this Swiss experience, would I have been so honest at the restaurant in England? Or would I have rejoiced in beating the system and getting some free beers?