A spy scandal at Credit Suisse highlights the role of ethics in finance. Financial institutions needs «ethics chiefs» in their C-suites, governance expert Eelco Fiole tells finews.com in an interview.

Eelco Fiole, banks and financial institutes have hordes of regulatory, legal, and compliance staff. Why do they need more ethics?

It’s like speeding on the highway. You weren’t compliant with the speed limit, but if nobody saw you, you can lie and even feel you didn’t violate any rules. We need a formal mechanism focused on ourselves to prescribe what behavior we expect in our industry in order to further restore credibility with clients, investors, regulators and ourselves.

Most finance firms have laid out an elaborate code of conduct.

The assumption that employees know what to do in every concrete situation has been shown to be flawed. We need to make expected ethical behavior more explicit than just a code of conduct.

How?

Firms need a «Chief Ethics Officer»-program to help implement awareness of possible and acceptable behavior: a system for both managing organizations and conducting business.

Like an internal monitor or watchdog?

Not at all – just singling people and individual behaviors out as bad leads nowhere. It’s a system issue that needs to address people, directly, in a reflective and preventive manner.

«Not put people on the defensive»

We need to engage in a discussion about how to enable better behavior in the future, and not put people on the defensive.

What should banks be doing themselves to avoid bad actor behavior?

We need to look at behavioral intent prospectively. Would it have negative consequences?

«By simply saying, 'there are certain things we don't do'»

And for whom – including the reputation of various stakeholders. I’m not talking about regulation, but about simply saying: «there are certain things we stand for and things that we do and things that we don’t do.»

Credit Suisse said shadowing staff isn’t in line with its values, and yet it still happened.

We may not know all the facts of the case. One can speculate that a formal mechanism such as a «Chief Ethics Officer»-program, if Credit Suisse doesn’t already have one, would have led to a more normative understanding of expected behavior. More analytical awareness could have had a risk-mitigating effect.

Can you be more specific?

Prescribed behavior is made explicit in rules and principles. Ethics is not esoteric. It’s about talking to each other analytically about what is the right behavior. You can also embed it into incentive-, sanction-, and remediation systems.