Why communication failure is an unaffordable risk

Gary Hagland / 2012

Too many financial institutions are failing to turn the mistakes of others into lessons of sound governance. So what’s missing from the myriad rules designed to safeguard this industry? Only clarity and wisdom.

Your message read: send three and fourpence we’re going to a dance! No, we definitely said: send reinforcements we’re going to advance!

Since 1763 there have been 22 seminal economic crises. The Wall Street Crashes of 1929 and 2008 are stark examples. All have been caused by sudden changes of expectations, sending a glaring signal that the corporate mindset should be trained to anticipate and pre-empt.

But the signal hasn’t been getting through. Perhaps Mark Twain was wrong and lack of communication, not money, is the root of all evil. Gordon Gekko may claim that greed is good, but like all tunnel vision, it’s dangerous.

Ask Ivan Boesky.

There are 5 million small businesses in the UK employing around 14 million people. Each will have to grow and employ many more people if the country is to climb out of the financial trough. And are they getting the wisdom they need? No, they’re recipients of convoluted and complex rules, bureaucratic language and the subliminal command to ‘comply or die.’

Here’s some small print from a high street bank’s recently revised Customer Agreement:

The size of the induced gross credit paid is directly proportional to the rate at which the lines of wholesale return are cut with all other aspects applying mutatis mutandis.

What does it mean? That any gross income depends on market performance. The always-concise Latin bit means that any other necessary changes to this agreement have already been made. But if it’s a necessary change, well, I’d like to know what it is thank you. Mutatis mutandis yourself.

The founder-architect of all contemporary financial services regulation is the late Professor L.C.B. ‘Jim’ Gower. In 1986 he said that there was too much regulation already and saw no case for protecting fools from their own folly. All that regulation should do, he declared, was to try to stop people being made fools of.

Numerous Acts of Parliament since then, schemes and regulators (and their acronyms*) have come and gone like passing clouds, obscuring the view, shedding no wisdom and leaving only the vague sense of being treated like a fool.

(*FIMBRA, the long defunct Financial Intermediaries, Managers and Brokers Regulatory Association, came to be regarded as a condition of terminal eclipse, from the Latin finis, an end, and umbra, a shade).

Instead of wisdom being gleaned and passed on to all in financial services, the default setting has been to demand compensation or capital support when something goes wrong. Users have been allowed to believe that regulatory compliance has been thrown in for their benefit, free of cost. So they want and expect more from it, just as they would from a National Financial Health Service:

Ah, patient RBS. Yes, you did flatline. Not to worry. You’ll be fine. Have an intravenous solution of taxpayers’ money until you’re better.

Meanwhile, Gower turns in his grave.

Comply or die? No. Failing to communicate wisdom is its own risk, which can spell the death of a business and an entire economy.

Gary Hagland