The Word of the Week Is Culture

3 07 2012

Banking culture that is. Last week, there were the revelations that traders at Barclays Bank manipulated the Libor rate. This week, we’ve had the academic analysis, journalistic pontificating, and political posturing. Generous portions of the word culture has been poured over the debate, although in some cases the speakers are using it like the intellectual equivalent of custard: it gives you a short-lived sugar high but not the energy you need to get through the day.

Mervyn King, the Governor of the Bank of England, kicked things off four days ago when he said that the Libor scandal proved that “we need a real change in the culture of the industry. And that will require two things, one is leadership of an unusually high order and [the other is] changes to the structure of the industry.” Read more here.

Adair Turner, the head of the FSA, the bank’s regulator, then called for a change in British banking “culture.”

This morning, George Osborne, the Chancellor of the Exchequer, also spoke about banking “culture” in an interview with the Today Programme. Osborne was being asked about this response to the resignation of Barclays CEO Bob Diamond a few hours earlier. Danny Alexander MP, the Chief Secretary to the Treasury, then chimed in with his thoughts on Diamond’s resignation:  “this is the right decision. Responsibility has been taken in the right way and hopefully this will help Barclays to establish a better culture in future.”

Three quick thoughts.

First, what precisely do people mean by the word “culture” here? This term is one of slipperiest concepts in the English language because there are so many damn competing definitions. I suspect that in this context people are referring to the accepted norms and practices within the banking community. That is certainly how I would define this term.  However, I would like to see more precision on the part of public figures when they throw this term around. Perhaps it is too much to expect an elected politician such as Osborne and Alexander to define their terms in the way an academic would in a paper. However, Turner and King should indeed tell us what precisely they mean by “culture” before they use this term. It is reasonable to expect a bit of precision from two regulators who were appointed, in part, on the strengths of their academic credentials.

Second, it is very interesting to hear the head of a regulatory agency, which relies on penalties to encourage correct behaviour, say that what is really needed is a cultural shift within the industry so that people behave themselves even when the regulator isn’t watching.  That’s great. For far too long the rational-actor model of human behaviour has been excessive dominant in the academic disciplines that study finance and the economy more generally. This model has caused people have given too much thought to incentives and not enough to cultural norms. For many people who study finance, the default assumption is that all human behaviour is exclusively self-interested and they people are in it to make as much money as possible.  This theory suggests that if you want them to behave a certain way, they must be incentivised to do so, perhaps by the risk of a fine.  There is, however, another way of thinking about economic behaviour and that involves looking at the ethical norms prevailing in a community. I think that the advantages of using this lens to study banking are illustrated by the events of the last week.

Third, I’m wondering what my fellow business historians can contribute to this debate. Business historians have written a great deal about culture in recent years. Ranald Michie’s Guilty Money: The City of London in Victorian and Edwardian Culture, 1815-1914 (London: Pickering & Chatto, 2009) is an outstanding example of this scholarship. How can the existing research findings of business historians who have investigated the culture of banking be translated into a format that would be accessible to policy-makers and other non-academics? How can we historians plan out new research projects that are relevant to the ongoing debate about the internal culture of banks? These are questions we need to ask right now.

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