John G. Taft, CEO, RBC Wealth Management
As Chief Executive Officers, we each have a responsibility to set the tone not just for our individual companies but for our industries and society at large.
I believe this is so in every industry, but in no sector is more so today than in financial services, where public perception, trust and confidence in the value of services we provide remains at all-time lows, even some seven years after the financial crisis of 2008-09.
The causes for the crisis are many, but preeminent among them was the increase of power and influence of leaders of finance America and investment America and their subsequent failure to exercise that power for the good of society.
On one hand, much has been done to make the financial system safer, sounder and more secure than it was going into the financial crisis. But the restoration of public confidence clearly is not something that can be fixed by a few pieces of legislation or by thousands of new rules and regulations – all examples of what Warren Buffett calls an “outer scorecard.” What is required is an “inner scorecard,” comprised of principle, culture and morality. And that puts us, the leaders of the financial services industry, at the forefront of the change that must happen in order for finance to regain public trust and to once again become a positive enabler of our economic system.
To help spark a conversation and set us down this path, I asked two-dozen thought leaders in the financial services world – the likes of Nobel laureate Robert Shiller and former FDIC Chairperson Sheila Bair – to share their ideas on what finance must do to be a force for good in the world today. Their ideas are captured in my book, A Force for Good: How Enlightened Finance Can Restore Faith in Capitalism, published last month.
The topics they chose include the following:
• Complete the unfinished work of reform of financial regulatory infrastructure, and make sure it keeps up with the growing shadow banking activity.
• Restore ethics, integrity and client focus to the financial-services industry.
• Restore investor trust and confidence in financial markets.
• Manage an orderly deleveraging of public sector balance sheets.
• Address imbalances in the finances of developed nations.
• Help to close the gap between what people have actually saved for retirement and what they will realistically need to live out their lives.
• Design a new system of housing finance.
• Retool the financial system for sustainability.
Tackling many of those tasks requires a partnership between lawmakers, regulators, market participants and corporate leaders. But others — namely the task of restoring ethics, integrity and client focus – rest squarely on the shoulders of our industry’s CEOs. As Vanguard Founder Jack Bogle, one of the contributors to A Force for Good, suggests:
“We have moved from a society in which there are some things that one simply does not do, to one in which ‘if everyone else is doing it, I can do it too.’ Business ethics…has been a major casualty of that shift in our traditional societal values.”
CEOs and senior leaders must once again make ethical principles core to their company cultures.
In his chapter of A Force for Good, Charles Ellis details five different leadership tenures at one financial firm (which he admires) that had a profound and deep impact on the culture of the firm. The succession of CEOs at this firm contributed to what he calls mission drift and “culture slippage,” the symptoms of which included a short-term focus on the firm’s own well-being and its profitability as opposed to what was in the best interests of its clients.
Before he resigned in the wake of Barclay’s LIBOR settlement, Barclays’ CEO, Bob Diamond, was reported by the Financial Times to have said in a lecture, “Culture is difficult to define, I think it’s even more difficult to mandate—but for me the evidence of culture is how people behave when no one is watching.”
Many people have responded favorably to Diamond’s formulation. My own reaction was: “Really? Is that all culture is?”
For me, culture is much more than that. Culture is the organizational equivalent of personality. Culture is core values lived out in hundreds or thousands or millions of daily activities and interactions – between management and employees, between employees and their colleagues and between employees and clients. It is to the corporate legal entity what “soul” is to a human being. It is what existed before and what will endure after any given generation of leaders comes and then moves on – whether anyone is watching or not.
Of course, not everyone agrees with me. “Corporations have no soul,” wrote one highly agitated reader in response to a blog I posted recently at HBR.org (which deconstructed Mitt Romney’s statement that “Corporations are people”). Perhaps not. But corporations do have cultures. And to say (like the Financial Times did) that in the case of Wall Street, certain financial institutions have “rotten cultures” is to say, in effect, that those institutions have lost their souls.
As CEOs of financial firms – as leaders of any company in any industry — we play a critical role in shaping culture. It is a critical driver of responsible long-term business success. Culture itself may not account for or be a sufficient condition for business success. But it is a necessary one. Because if you don’t get culture right, nothing else matters.
About the Author
John G. Taft is CEO of RBC Wealth Management – U.S., the eighth largest full-service retail brokerage firm in the U.S. (based on number of financial advisors), with nearly 1,900 financial advisors in 41 states and over $281 billion in assets under administration. The firm’s success is rooted in its long-standing stewardship tradition of responsibly managing clients’ wealth and a reputation for putting clients first.
As the great-grandson of U.S. President William Howard Taft and grandson of Senator Robert A. Taft, John comes from a distinguished family well-known for its commitment to integrity.