It’s often said that if you want to gauge public opinion on any current issue accurately, ask a taxi driver. I would add hairdressers to that list. Most of us will be familiar with being imprisoned in a hairdresser’s chair, forced to listen to tedious opinions about all manner of topics, including politics, footy and travel. I recall an encounter in which I was lectured in considerable detail about the shortcomings of Australian art, music, culture, restaurants, climate, roads, public transport, hospitals, education and sport. All in one sitting. You name it, whatever the topic, somewhere else in the world was better. How thankful I am that, unlike taxi drivers, hairdressers don’t charge by the minute.
Then, during a recent appointment, the conversation became rather more serious. The hairdresser earnestly informed me he was so tired of politicians that he no longer believed in liberal democracy and he hoped a dictator would soon take over and “get something done for the people”. Sadly, he meant it. I lamely pointed out that a dictator might not act in the hairdresser’s family’s best interests. This was dismissed with “a dictator couldn’t do any worse than the current lot”.
This rather shocked me because, for the first time, I had observed what several international polls have been reporting. That is, a sizeable proportion of the population in Western liberal democracies has lost trust in the checks, balances and freedoms that we have carefully adapted and nurtured for more than a hundred years, and that our forebears fought and died to preserve.
It seems that many people have little confidence in our society’s institutions, be they public or private, to deliver decisions in accordance with fair and transparent governance procedures. They have decided those institutions are unethical and loaded, in favour of elites who manipulate them to the detriment of the general populace. And there is an ever-growing cohort of politicians across the world who are willing to support and promote that point of view. US President Trump’s “drain the swamp” exhortation is a leading example.
Given the amount of time, effort and money that has been expended over the last 30 years promoting and installing good governance procedures in our public institutions, corporations, businesses, charities, professional associations and even sporting clubs, it is quite remarkable that it’s come to this. What could be the problem? After all, good governance is at the top of the agenda of every modern board and committee. There is constant reference to it. Failure to acknowledge and adopt good governance procedures is viewed as a major operational flaw, if not a serious offence against the law.
Yet the public’s mistrust in growing. Why? I certainly don’t claim to have a definitive answer. However, my close observation of poor behaviour in the financial services industry over recent decades, especially since the deregulation push in the 1990s, may offer a clue.
Governance vs. sales
There is no shortage of prescribed governance procedures in financial services. If one asked its participants to describe publicly the principal purpose of those procedures, they would say they are designed to achieve accountability, transparency, responsiveness and efficient, ethical outcomes for customers. That sounds brilliant. If only it happened that way. Unfortunately, actual outcomes financial services often fall well short of the high principles to which the industry aspires.
I submit the reason for this is that the industry’s overarching objective of profit maximisation through product sales incentives is often inconsistent with the good intentions embedded in its governance arrangements. And when the short-term product sales and profits are pitted against long-term good governance, the former will generally prevail.
At the heart of the problem are conflicts of interest that drive the industry’s culture. Putting it another way, the industry’s governance procedures consistently fail due to lack of a solid ethical framework that should underpin decisions. As a result, consumers constantly experience bad behaviour by industry participants, even though the industry claims to carefully apply good governance procedures.
These experiences make consumers cynical, resulting in a deep lack of trust in society’s major financial institutions. An obvious example is the public’s attitude towards banks. In a previous generation (before deregulation), the local bank manager was one of the most trusted members of the community. This person could invariably be trusted to act in a customer’s best interests; there was no question about that. In those days, governance procedures were minimal and informal; however, they were supported by an implicit ethical framework that unquestionably led to decisions in the interests of customers.
Today, trust in banks has dissipated substantially and, ironically, this has happened even as formal governance procedures have grown exponentially and explicit promises of ethical practices have become common.
The financial services industry is but one example of a widespread lack of trust in the willingness and ability of society’s institutions to make fair and equitable decisions in the interests of citizens. We can develop formal good governance procedures ad infinitum, but until those decision-making processes are applied consistently in line with the ethical principles that are supposed underpin them, public cynicism will continue to grow and governance will be ineffective, hollow and untrusted.
It doesn’t have to be that way. As a group of people who claim to be professionals, financial planners are uniquely placed to take a leadership role in the rebuilding of community trust and confidence in institutions. The question is whether the price of professional leadership will prove to be too high.