I have written before about the situation of the financial sector, trust and ethical selling, but in light of the findings of the banking royal commission, it is important to reflect on what banks can do to regain trust.
So what is at stake with trust in banks, and how can this trust be reclaimed?
David Robertson, head of economic and market research at Bendigo and Adelaide Bank says:
“Trust and lending are inextricably linked, and the provision of credit is a primary (and imperative) role of banks.
“The role of a bank therefore is both to act as an intermediary — a bridge between investors who have excess money and borrowers who have a vision or need but not enough money — and perhaps more importantly to be a foundation of trust for the financial system. This feeds into economic growth and prosperity by enabling credit to be freely available to fund projects and visions, and moreover to ensure that mutual trust in money is maintained. So when the Royal Commission into misconduct in the financial services industry revealed widespread examples of appalling customer outcomes and poor conduct (and culture) at a number of banks, insurance and superannuation companies, the risk wasn’t just that some finance industry share prices might fall for a period. It was much deeper; that the provision of credit might become restrained, and that the communal trust in money, the ability to borrow and to plan for the future may be inhibited.”
David also explains that out of the royal commission, the total cost to the four major banks and AMP has been estimated at $7.4 billion, via customer remediation and refunds, risk and compliance costs and regulatory costs, according to an estimate from Shaw and Partners.
The cost of lost community trust, however, is much harder to estimate, and may be far more challenging to recover.
So what are banks to do? What is the way forward for banks and other institutions to regain trust?
David suggests that to regain trust and respect, Australians will need to see real evidence of banks doing the right thing: actions and outcomes, rather than just apologies, promises and fines.
One business model David subscribes to is the one put forward by Harvard University Professor Michael E Porter (one of the most influential economists and business advisors of the last 50 years): the concept of ‘shared value’. In short, this means companies creating economic value alongside creating societal value. Porter postulated in his seminal Harvard Business Review that “the purpose of the corporation must be redefined as creating Shared Value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy”.
The attraction of this approach is the collective and mutual benefit for all stakeholders — for customers, for shareholders, for employees and for the broader community.
Financial institutions have a long way ahead of them if they want to regain the trust of the community, but there are ways forward if they are willing and committed to doing the right thing for their own sustainability, their people and their communities.
Remember everybody lives by selling something.