By Lee White

We surveyed over 700 bankers and financial practitioners from around the world to look under the bonnet of ethics in banking and finance.  We wanted to go beyond the stories of unethical behaviour, and explore the culture that permits such behaviour.

What we found is that it’s not as simple as good, bad, black or white.

Research suggests that many individuals behaving badly are often unaware of the ethical implications of their actions.

We identified a range of factors contributing to bankers behaving badly and in most instances, bad behaviour was found to be not conscious, but justified in a range of ways that allow bankers to continue to believe in themselves as ethical people.

For example, personal biases allow decisions to be framed in a way that makes bad behavior seem fine. This can be seen in confirmation bias, when boards apparently miss evidence that fails to back up their belief and availability bias in which the easiest or most recent information is the only evidence considered.

These personal biases came into play for the banker Tom Hayes, who was convicted in the UK for LIBOR manipulation. He justified his behavior with ‘everybody was doing it’ – relying on the few people around him to form a universal belief. This is a common form of bias leading to unethical behavior being explained away.

However, it is not just bias that can lead to unethical behaviour. The big “bonus culture” has been cited by experts as a driver of bad behaviour in the financial services sector.  More specifically, experts quote misaligned incentives. A catalyst for unethical behavior can be where large bonuses are awarded to individuals for certain outcomes irrespective of how those outcomes were achieved. This misalignment is extenuated when coupled with half-hearted censure when caught doing the wrong thing. .

A good example of this in Australia is the personal financial adviser.  Here we have personal financial advisers selling financial products to clients and receiving a commission for doing so from the product provider.  At what point does the client’s best interest suffer?  I personally believe that financial advisers should be paid to advise and the client pays for these services.  A clean transparent transaction, no need for middle-men.  

So what can be done to address this? To start with almost everyone views themselves as behaving ethically … even when they don’t.

Our research highlights three factors – structural, individual and social – that can consciously or unconsciously encourage unethical behaviour. Across these three areas our survey found that greater accountability, a more diverse culture and training in decision-making processes, were seen as being the most effective ways of addressing this issue.

This translates into a range of possible responses.

First, the ethical capabilities of those working in banking and finance need to be better developed. Chartered Accountants have extensive focus on ethics as part of their ongoing training, and the discipline of keeping matters top of mind through regular training supports ethical behavior in real life situations.  This type of training is about encouraging less reliance when making decisions on mental shortcuts and helping to develop principled reasoning in which ethical considerations are part and parcel of cost-benefit calculations. It is also useful to encourage a clear expectation from the top that employees must always behave ethically and requiring regular training which supports that expectation.

Second, the manner in which financial incentives such as bonuses are awarded need to include ethical considerations when measuring and rewarding performance. This is particularly significant given most incentive schemes in financial services are based exclusively on market and profit measures. The reputational risks of unethical behavior are now well publicised so there is a clear cost in not addressing these factors in incentive schemes. Also, of course, pure financial focus can misalign personal and corporate interests in other ways including corporate culture, health and staff turnover.

Finally, the leadership of an organisation needs to address ethics with unwavering focus to help shift culture from one of benign neglect to a clear focus. This can be encouraged by initiatives such as ‘ethical moments’ to help shift decision framing to a more ethical mindset. This idea mimics some companies’ safety moments and encourages employees to share ethically based decisions before every meeting. Getting employees to talk about ethics has been shown to increase ethical behavior.

Ultimately what has come out clearly from our research is that an ethical culture of accountability is vital. If this becomes dominant in banking and finance, it will create a virtuous circle in which incentives and structural solutions such as regulation become far less important. It may also help weaken some of the stereotypes that have only ever been true of a small proportion of people working in banking and finance.


Lee White, CEO, Chartered Accountants ANZ

Full report: Ethics in Banking and Finance