Rebuilding Trust in Banks

The Role of Leadership and Governance

John Zinkin

• Publisher: Wiley
• Year: 2013
• Print ISBN: 9781118550380
• eBook ISBN: 9781118550410
• Edition: 1
• Topic: Business
• Subtopic: Etica aziendale
• Index: Business

An outline of the core principles and strategies required to restore the credibility of the global finance industry

Since 2008, the global financial industry has lurched from crisis to crisis, calamity to calamity, resulting in an epic loss of public trust in banking and financial institutions. Rebuilding Trust in Banks argues that this series of disasters have usually been the result failures of leadership and governance, combined with unenforced systems of checks and balances. Often, leaders lose their way, believing their own hype and buying into their own propaganda. The more successful these leaders are initially the greater their self-confidence grows along with the certainty that they're right. The result is a dangerous hubris with no countervailing power to stop or change reckless, unethical, or self-interested strategies. This book offers a solution, with useful benchmarks for corporate governance and a global perspective.

• Features effective best practices for ensuring good corporate governance and responsible leadership in banking and finance
• Written by a renowned expert in corporate governance with more than 40 years of experience, particularly in Asia
• Intended for corporate leaders and board members in financial companies, as well as regulators, advisors, and students

If banks and other financial institutions truly want to rebuild the trust they once enjoyed, this practical and prescriptive guide offers effective best practices that can—and should—be widely implemented throughout the industry.

CHAPTER 1

Leadership: A Force for Change

Effective leaders create change and are able to mobilize their followers to achieve such change. However, the act of leadership is morally neutral, as the changes can be good or bad. This chapter explores the extraordinary career of Napoleon, who achieved more than any single individual in European history, both militarily and administratively, and yet failed in the end. It concludes that there are 11 lessons of good and effective leadership and that Napoleon did not satisfy the criteria of all of them, which is why he ultimately failed.

To be a leader one must have followers.

History is full of leaders with followers prepared to die to achieve what their leaders asked of them or ordered them to do. The greatest leaders changed the world they lived in, both for the better and for the worse. Regardless of the outcome, what they had in common was good timing, a strong sense of purpose, and an exceptional ability to communicate their vision and harness the values of their followers to energize them to action.

I believe truly great leaders are remembered because they were able to create major change, or else lasting change, or both. Perhaps the difference between truly great leaders and great bad leaders lies in their legacy and governance. I argue the great leaders of both history and business were able to build or create change that outlasted them, whereas great bad leaders manipulated their followers or employees to achieve selfish and self-centered goals, which did not survive their demise or led to catastrophe for their followers or employees during their lifetimes.

Perhaps the best way to assess leaders as a positive force for change is to see how they have passed certain tests:1

• Find the energy to create a better future.
• Have a clear purpose at all times.
• Lead with values.
• Encourage courage to speak truth to power.
• Learn from failure and forgive and move on.
• Recruit co-leaders and share authority and responsibility.
• Move from “I” to “We” thinking and create conditions for maximum collective success.
• Create a legacy that lasts.

The best way to illustrate the difference between these different types of leaders, whom I define as “Great Good” leaders and “Great Bad” leaders, is shown in Table 1.1

Table 1.1 Leadership Styles Compared

Great Good Leaders	Great Bad Leaders
1. Find the energy to create a better future. 2. Have a clear purpose at all times. 3. Lead with values and by example. 4. Encourage people to speak truth to power. 5. Learn from failure. 6. Recruit co-leaders and share authority and responsibility, while retaining accountability. 7. Move from “I” to “We” thinking and create maximum conditions for collective success. 8. Create a lasting legacy.	1. Find the energy to create change, though often not for the better. 2. Have a clear purpose at all times. 3. Lead through fear and force. 4. Shoot the messenger. 5. Paranoiacs who punish failure. 6. Centralize control and authority becoming bottlenecks in decision making. 7. “Après moi le deluge”; regard themselves as indispensable and manipulate followers. 8. Fail to create a lasting legacy.

History is so full of leaders it is difficult to know which ones to choose. To show that what we regard as great historical leadership per se is in fact morally neutral or value free and that limiting the definition of leadership to good leadership only is problematic,2 I will look briefly at one leader, Napoleon Bonaparte, as a force for change and let you decide whether he was a great good leader or whether he was, in the words of the Earl of Clarendon writing about another great revolutionary leader, Oliver Cromwell, “A brave badd [sic] man.”3

It is worth noting that some of the greatest leaders of history may not pass all these tests and many more will fail the legacy test. I refer in particular to tests 3, 4, 6, and 7 below. We may find we cannot agree with their values. They did not encourage people to speak truth to power but shot the messenger instead. We may find the real underlying motive was all about satisfying “I” and had little to do with “We”; or the spirit of the times and the style of command did not allow for maximizing collective success, depending on how we define collective success. Many are likely to have been dictators, tyrants, or autocrats and, despite this, they were regarded as great leaders, even if their followers had no choice but to follow them. Great good leaders, however, did not have this problem. Their followers chose willingly to be led by them. Even so, as early as Confucius, rulers were advised to be benevolent and virtuous:

He who rules by virtue is like the polestar, which remains unmoving in its mansion while all the others revolve respectfully around it.4

When asked what a ruler should do, Confucius replied:

Approach them with dignity and they will be respectful. Be yourself a good son and a kind father and they will be loyal. Raise the good and train the incompetent, and they will be zealous.5

Lao Tsu, a Chinese contemporary of Confucius, recognizing there were bad leaders as well as good and great ones, had this to say about leadership:

A leader is best when people barely know he exists, not so good when people obey and acclaim him, worst when they despise him. But of a good leader, who talks little, when his work is done, his aim fulfilled, they will say, “We did this ourselves.”6

As Barbara Kellerman points out in her book, Bad Leadership: What It Is, How It Happens, Why It Matters, this assumption leadership is a form of behavior that gives followers the choice whether to be led or not, is a new idea. It dates back to the work of James McGregor Burns in 1978 when he introduced the concept of transformational leadership7 and Warren Bennis in 1989 when he introduced the concept of authentic leadership.8 Both defined leadership as an exercise of power over others based on mutual advantage: “that leaders engage others by creating shared meaning, speaking in a distinctive voice, demonstrating the capacity to adapt and having integrity.”9 Leaders who coerced their followers or, worse still, obliterated them, were not leaders; they were defined as “power wielders” by Burns. “Power wielders may treat people as things; leaders may not.”10

Yet historians and political scientists throughout history before this reframing of leadership by Burns and Bennis knew about the dark side of leadership and studied it extensively and neutrally;11 nobody more so than Machiavelli in his book The Prince. He accepted the idea of coercive leadership, because in his mind, the only leader who is bad is a weak leader who cannot make things happen. So much so, that Machiavelli gives advice on how best to coerce followers:

Cruelties can be called well used (if it is permissible to speak well of evil) that are done at a stroke, out of the necessity to secure oneself and then are not persisted in but are turned to as much utility for the subjects as one can. Those cruelties are badly used which, though few in the beginning, rather grow with time.12

This brings me to a fundamental issue in the discussion about leadership and its corollary, followership: why leaders lead and followers follow. At its most basic, the answer to this question is self-interest. Leaders and followers engage in a compact designed to protect all against the anxieties caused by disorder and death. In the end, it is this that unites the thinking of Hobbes,13Locke,14 and Rousseau.15 What differentiates their positions is the emphasis they place on the obligations they believe leaders must take on if they are to maintain legitimacy in the eyes of their followers.

There are many reasons why followers put up with bad leaders.

At the individual level, bad leaders may satisfy a need for certainty, simplicity, and security. From childhood, we have been acculturated into followership—doing what our parents or elders tell us to. “Getting along by going along” is an important social lesson we all learn when we are young. We follow because the cost of not following is often too high. Resistance can create confusion and uncertainty, the very states most of us want to avoid, so resistance is doubly hard. We need leaders to make sense of the world, because as Nassim Taleb and Daniel Kahneman have pointed out, we do not accept the world is random.16 We need plausible causal explanations, however improbable they might be. It is the way our brains are hardwired to work.17 Leaders provide the answer to such needs. Finally, in an increasingly uncertain world, leaders are assumed to know what they are doing, even if their followers do not.18 The angst we experience when we do not understand what is happening makes us all the more likely to turn to a person who gives the appearance of being strong and certain.19

At the group level, decision making becomes even more complex. It is relatively easy for 10 people to reach a consensual decision. It is impossible for 10,000, let alone 10 million. That is why we need hierarchies with leaders at ...

Table of contents

• Cover
• Additional Praise
• Series
• Title Page
• Copyright
• Preface
• Acknowledgments
• Chapter 1: Leadership: A Force for Change
• Chapter 2: Leadership: From Success to Failure
• Chapter 3: Setting the “Tone at the Top”
• Chapter 4: Ethics in Finance
• Chapter 5: The Role of the Board: Theory and Reality
• Chapter 6: Leadership, Governance, Strategy, and Risk
• Chapter 7: Developing Suitable Leaders
• Chapter 8: Ensuring Organizational Integrity
• Chapter 9: Governance: The Wise Restraints That Set Men Free
• Chapter 10: Leadership with Governance: Rebuilding Trust in Banks
• About the Author
• Index