June 27, 2016 – by Rob van de Blaak and Muriel Weinstein &samhoud consultancy
Putting the customer’s interest first does not come naturally to bankers
On a Friday evening in May 2016, we sat with 900 other people in a packed Amsterdam theatre for the debate evening with Joris Luijendijk, author of the bestseller Dit kan niet waar zijn (available in English: Swimming with Sharks. My Journey into the World of Bankers) and Wiebe Draijer, CEO of Rabobank. According to the Dutch newspaper NRC, it was a ‘bold move’ by Wiebe Draijer to attend this debate, as he was the first banker that dared to debate in the first place. The message of Luijendijk’s book was: bankers have not learned anything from the financial crisis and the next catastrophe is merely a matter of time.
In this blog we will explore the behaviour of bankers in relation to putting the customers’ interests first. The lack of the focus to put the customer’s interest first was one of the reasons the financial crisis arose.
We will elaborate on the fact why adhering to the code of conduct customer’s interest first does not come naturally to bankers. We will also explain what role the banker’s oath has in complying with this code of conduct. The bankers’ oath has initiated a discussion about the behavioural dilemmas bankers encounter in their daily work.
It has been eight years since the financial crisis hit. Since then, many measures have been introduced to restore trust within the banking sector. Before the crisis, scant attention was devoted to the so-called soft side of organizations (culture and behaviour). After the crisis measures were implemented to change the culture and the conduct of bankers for the first time. The banker’s oath was one such measure. The bankers’ oath must ensure that the right culture of service-oriented, sustainable and ethical banking is internalized.
Since 2015 every employee working in the financial sector in the Netherlands, around 90,000 people, is legally required to take the bankers’ oath. With this pledge the employee commits to comply with certain rules of conduct.
Employees are personally responsible for complying with those rules of conduct and can be held accountable for non-compliance.
The code of conduct: the customer’s interest first
We zoom in on the code of conduct: customer’s interest first. We look at the implication of the code of conduct and explore why it could be complicated to continuously comply with this code of conduct in the banking sector. At the end, we will look in what way the bankers’ oath changes the compliance of this norm in the financial sector. The banker’s oath requires bankers to put the customer’s interest always first. This means that the employee treats the customer in an honest way and with great care. Furthermore, the banker has to endeavour to reach the best attainable result in a given circumstance for his/her client.
Rob van Esch says in the Financial Law journal that this norm has given rise to much discussion among bank employees. The next section explains why it is hard to adhere to this specific code of conduct.
Complying with the code of conduct: ‘the customer’s interest first’
There are various reasons why it is not easy for bankers to focus on customers all the time.
Firstly, the functions of the people working in the financial sector are multifarious. It is not a homogeneous professional group. In short, the role of the employee has an impact on how the norm is used and therefore you cannot speak of one meaning of the norm. As a banker it is not easy to continuously focus on the customer and especially not if you are not guided in this direction. For example, financial advisors sometimes cannot focus on the customer as doing so may occasionally conflict with banking policy. Banking policy is mainly focused on a big group of customers, but advisors need to apply customized goods. From time to time, this create an area of tension.
Another group of employees is the Special Asset Management department. Their aim is to manage financial risks that are connected to providing financing. This means that they could cut loans, resulting in a dissatisfied customer. Some employees working in a ‘special maintenance’ department have voiced their concern. They fear that dissatisfied entrepreneurs could abuse the bankers’ oath. They are of the opinion that people could use the oath as a stick to beat, if they are against the measures taken by the employees of ‘Special maintenance’.
Another reason, which shows that customer focus is not always simple, concerns the complexity of financial products. Financial products have to be viewed as a product of their time. An example is the poorly performing derivatives instruments for small- and medium-sized Dutch businesses. When derivatives were provided, it was widely thought that they were good financial products, but with the changed market these products are now considered ‘defective’ products.
Finally, it is the existing culture of banks that makes it difficult for bankers to adhere to the ‘customer focus’ code of conduct . Staveren and Tilburg conclude in their 2015 report ‘Bankcultuur’ (Banking culture) that bankers truly want to focus on their customers, but are prevented by the bank culture.
The researchers have shown that employees are managed by the objective of results and get little room from their manager. Here, we must make a subtle distinction since the culture between and within the Dutch banks differs enormously. However, this does not alter the fact that the system of (stock-exchange) banks are based on short-term profits. This could undermine customer focus.
Does the bankers’ oath help to comply with the code of conduct: customer’s interest first?
To conclude this blog, we would like to answer the question regarding what role the bankers’ oath has in complying with the ‘customer’s interest first’ code of conduct . When the bankers’ oath was introduced, many people criticised this instrument. Some said the oath is just a symbolic political instrument, while others even asserted the oath as something that will stimulate counterproductive behaviour. By now everyone who works in the financial sector has taken the oath, however it is too soon to say if it has contributed to the cultural change where the customer is the focal point.
We have been doing research to discover the exact meaning individual bankers give to the bankers’ oath. We have not concluded our research yet, but could share some initial results to give a provisional answer to the question stated above.
Some of the interviewees stated that the bankers’ oath does not help comply with the code of conduct. On the other hand, they recognised that during the implementation of the bankers’ oath there was discussion among colleagues on the behavioural dilemmas encountered in daily work practice.
In some cases, the implementation of the bankers’ oath influenced the individual banker by creating an awareness about the code of conducts every banker should always keep in mind. Within some financial institutions it had an impact on an organisational level. A good example is Alfam. This company provides financial services such as consumer credits and is one of &samhoud’s clients. They have organised customer’s interest first master classes for all their employees. During this master class they talked about the meaning of customer’s interest first and discussed numerous ethical dilemmas they could encounter in their everyday work. The main message was: look at individual cases carefully from different perspectives, and in case of doubt, discuss it with others and make a well-considered decision.
We will present the results of our qualitative research on the meaning of the bankers’ oath in another blog in July.
Muriel Weinstein has been working as an intern at &samhoud since March 2016. She will graduate as a Master of Science in the field of Organizational Science and Change Management. In the context of her Master she has been conducting research on the bankers’ oath.
Rob van de Blaak has been guiding Muriel through this process with his knowledge of the financial sector and change management.