Operationalizing Ethics

 

By Monica C. Meinert

At virtually every stage of life, sooner or later everyone runs into an ethical dilemma. As a young adult, it might be whether or not to cheat on a test or a homework assignment. As a professional, it may be a decision to change a few numbers on a balance sheet to hit quarterly revenue goals, or to turn a blind eye when a co-worker makes a customer a bad deal, knowing it will result in financial gain for the company.

No matter what the circumstances, the question at the heart of every ethical dilemma is the same: do you do what’s right, or what you can get away with?

How employees respond to this question should be of great concern the CEO of any organization, but it’s especially important in banking. “Banks handle people’s money. That’s about as personal as it gets. The whole [banking] system depends on trust, and that tone has to be consistently applied throughout an organization,” says Linda Childears, a former bank president and the current president and CEO of the Daniels Fund, a Denver-based philanthropic foundation whose priorities include ethics education.

The behavior of bank employees has implications not just for the individual institution, but for the entire industry. Banks that operate with high integrity and trustworthiness reap the rewards of deeper customer relationships and the earned respect of their communities, while those that fail to do so often cause significant reputational damage that can take years to repair.

When bankers reflect back on the financial crisis, one of the widely acknowledged consequences is the loss of trust in the industry that resulted from unethical behavior by a few bad actors. And while bankers have worked hard over the past eight years to regain lost ground, public opinion has been slow to shift, as highlighted by a 2016 Gallup poll. When asked to rate the honesty and ethics of various industries, just 24 percent of American consumers rated bankers as having “high or very high” honesty and ethical standards, while 30 percent rated bankers’ ethical standards as low or very low. (A decade before, the split was 37 percent to 10 percent.)

The strength of a bank’s internal culture can have significant bearing on the types and frequency of misconduct it is likely to face. According to the Ethics Resource Center, organizations with weak ethics cultures were more likely to see ongoing patterns of misconduct spread across larger groups of employees, while for organizations with strong cultures, the majority of ethical misconduct observed were single incidents perpetrated by individual employees.

Childears says that building an ethical culture within an organization comes down to “whether the CEO really values it, communicates it, reinforces it, lives it and doesn’t tolerate anything but that.”

So how do you operationalize ethical behavior?

Start at the top—the very top

At Cape Cod Five Cents Savings Bank, a $3 billion mutual in Orleans, Mass., creating an ethical culture starts at the highest level of the organization, according to chairman, president and CEO Dorothy Savarese, who also serves as chairman of the American Bankers Association.

“First of all, we have to get complete buy-in from the board, and they work with us on the development of the strategic plan, the mission and the values,” she says. “We define ourselves as a values-based organization, so we begin with that—we work it into our mission statement, we define our values, and then those two things are incorporated into the strategic plan. We communicate them widely and manage to them.”

Organizational cultures live or die by their ability to get everyone singing from the same hymnal. But before the organization can even start communicating expectations down the chain, everyone at the very top must be on the same page. And while CEOs might take for granted that everyone on the board and executive team defines ethics in a similar way, Drake Mills, president and CEO of Ruston, La.’s Origin Bank, discovered that that isn’t always the case.

Over the course of his 33-year career with Origin, Mills says he has seen ethics become an increasingly central focus for the bank as it grew organically from $13 million to $4 billion. Recently, the bank contracted a Washington, D.C.-based law firm to prepare a lengthy ethics questionnaire for officers and directors.

“What was interesting was that even among directors and officers that worked closely together, there were inconsistencies in what were reported as potential conflicts [of interest],” Mills notes. Out of that experience, the bank decided to bring in an ethics expert to do an annual ethics training with the bank’s officers. After the first course, “we found… that there was a lot of ground to cover in terms of creating an environment where ethical decision making was top of mind,” Mills says, adding that the bank is considering making the ethics training a semiannual affair.

“I’ve always felt this is a highly ethical organization,” Mills says of his bank. “But the issue is [that] we weren’t creating accountability, we weren’t testing for that. Ethics means different things to different people, and ethics should be consistent within the organization. So that created an opportunity for us to build monitoring processes and continue to enhance awareness around ethics.”

Lead by example

In addition to calibrating expectations for the board, it is also the CEO’s responsibility to exemplify ethical behavior to bank management, employees and the community. “You try and lead by example, and do your best to surround yourself with a management team that lives by the same principles as you do,” says former ABA Chairman Dan Blanton, who was CEO of Augusta, Ga.-based Georgia Bank & Trust before the company merged with Columbia, S.C.’s South State Bank earlier this year.

Blanton understands the importance of strong ethical leadership, and credits his own personal code of ethics to his father and other prominent Southern businessmen he learned from as a young man, including banker Russell Blanchard, whom Blanton refers to as “the epitome of ethics and honor.”

Blanchard was passionate about instilling ethics in up-and-coming professionals—when he retired from banking, he started a speaker series at Augusta University that focused specifically teaching business students the importance of ethics. Today, Blanton continues to further his mentor’s commitment to ethics, both at his bank and in the community—his bank endowed the Russell Blanchard Lectureship Series after Blanchard’s death in 1999.

“Part of [ethics] goes back to how you were raised, and what examples in your life showed you how to walk down the path of doing things honorably and correctly,” Blanton notes.

CEOs have the opportunity to model ethical behavior for their employees in every decision they make. When facing an ethical dilemma as a CEO, “I think you have to stop and really think about who’s involved in the decision you’re about to make: who’s impacted by it, is it legal, is it fair, is it good for long-term business?” says Linda Childears. Then be prepared to stand behind that decision. “For a CEO to be able to articulate to staff, ‘This is the thought process I went through to get to this decision,’ [it] helps develop junior staff to think that way.”

Communicate expectations clearly

Having a written ethics policy can also go a long way in setting and communicating ethical standards for employees, says Louisiana Bankers Association President and CEO Robert Taylor. Taylor speaks often with bankers and the media about the LBA’s code of ethics, which was crafted by community bankers and adopted at the LBA annual convention in 1928. The code, which establishes clearly that “the name of a banker should be a synonym, and a pledge, of honor and fair dealing,” is a testament to the fact that ethics withstand the test of time.

However, just because the basics don’t change with the years doesn’t mean that they don’t need to be continually discussed. Taylor stresses the need for an ongoing dialogue about ethics so that the issue is not just raised when misconduct occurs.

“We’re going have situations that are reported that are negative, and we need to have a plan where this is something that we talk about all the time, so it’s not just when there is a problem—it’s a regular thing,” he says, adding that being more vocal about ethics on a regular basis could help improve public perception of the industry.

But making an industry-wide impact starts with individual institutions. “If you never talk about something, then it’s not important. A CEO has to make the effort and say ‘this is the way this company is going to be run, and this is what we expect,’” Taylor adds.

At Cape Cod Five, expectations are clearly outlined in the bank’s code of conduct. “We get fairly granular,” says Savarese. “We give a lot more specificity as to what our expectations are in terms of honesty, integrity, confidentiality, impartiality. It helps people understand where the sidelines are. We value diversity of thought, but the one thing we’re insistent on is adherence to our values and our code of conduct.”

Engage employees

Savarese adds that employees need to be engaged in order for a strong culture to really take root. “The employees, first of all, have to care. So we work very hard on employee engagement—listening to them, helping them develop and letting them bring their best selves to work,” she says. “That’s really job one. Then, you have to provide an environment in which their ideas are welcomed. And that’s one of the things that we do—whether it’s constructively positive or constructively critical, we welcome input from all sides. And the other thing is, they have to see that if something were to arise, that we react to it very promptly—and we do.”

At Dan Blanton’s bank, employees embraced the idea of “doing the right thing” not just as a marketing mantra, but as a standard by which they evaluate each and every business decision. “We test ourselves,” he says. “Any time a question comes up about a particular decision, the question we ask is ‘is this the right thing to do?’ Is it the right thing for the customer, is it the right thing for the bank, is it the right thing for the community?”

Keep a finger on the pulse

Like any good system, a bank’s internal culture is something that needs to be continually monitored to ensure things are running smoothly. Savarese emphasizes a continuous flow of up-and-down communication between management and the front lines. Both Cape Cod Five and Origin encourage employees to report any ethical concerns either through the management team or through an anonymized whistleblower program that goes directly to the audit committee.

At Origin Bank, Mills also encourages employees to disclose annually the activities they are involved with outside the office—such as serving on boards for nonprofit, civic or social organizations—to help the bank steer clear of any potential conflicts of interest. Mills adds that diligent monitoring and strong corporate governance can help CEOs respond quickly both to incidents of actual misconduct or to recommendations from regulators after an exam.

Another way to assess the health of the bank’s culture? Look outside of the organization, Blanton says. He recommends that CEOs listen carefully “to feedback you get from the community and from the people you do business with, like your vendors.”

“Occasionally, you get negative feedback, and when you do, first you have to think through it, and then you go sit down with that person and make an effort to correct it, and point out to the person where they should’ve handled it differently,” he adds.

And while ethical dilemmas are rarely black and white, the CEO should have zero tolerance for employees that willfully engage in unethical behavior, Childears says. “If it’s a simple mistake, you work on correcting that and making sure they employee knows better next time. But if it’s outright fraudulent activity, they’ve got to go. Period.”

An honorable profession

Trust is the hallmark of banking, and building that trust with customers is one of the key reasons that “banking is such an honorable career,” says Blanton. But trust is more than just a mission statement or a brand promise—it is manifested in the actions and decisions of each and every bank employee. As the industry continues to restore the trust that was lost in the financial crisis, both Mills and Taylor say they see opportunities for more ethics education for bankers, and that increasing the level of ethical awareness within an organization can go a long way.

Taylor adds that the industry must also continue to hold every banker accountable to the high standards of honesty, integrity and ethical conduct that their customers deserve. “We need to talk about ethics, and when some of our own bankers fall short, we need to be willing to say that,” Taylor says. “We need to be consistent that this is what we believe in, this is why we believe in it, and we want everyone to live up to this.”

And he says that bankers throughout the country are committed to that mission. “Bankers have really embraced this—they’re not shying away from it. They want this to be front and center of who they are,” he says.

Savarese agrees. “I’ve had the rare privilege of meeting bankers from all over the country, and I know how passionate they are about this. The more we can help each other accomplish this end of having values based organizations that carry out their work with the highest levels of ethics, the better off the industry will be.”

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About Monica C. Meinert

Monica C. Meinert
Monica C. Meinert is associate editor of the ABA Banking Journal and ABA Daily Newsbytes.