In a recent speech at Regent’s University in London reflecting on the qualities of leadership in the finance sector and more broadly, Bank of England Governor Mark Carney has emphasised the necessity for leaders to act in accordance with the 'purpose' of the organisation which they are leading, a purpose which he says must be grounded in the objectives of 'clients, society and humanity'. Commenting directly on the role of leaders in financial institutions Mr Carney said: 'To maintain social capital, finance ultimately needs to be seen as a vocation, an activity with high ethical standards, which in turn conveys certain responsibilities. Those responsibilities recognise that finance is not an end in itself but a means to promote investment, innovation, growth and prosperity'.
Three characteristics required for successful leadership
Mr Carney identified three characteristics required for successful leadership in the current environment:
- Purpose: Mr Carney urged leaders to define their 'purpose and stick to it obsessively'. Purpose, he added must be 'grounded in the objectives of clients, society and humanity' rather than limited to pure financial success. Mr Carney quoted John Kay in support of this view: 'Profit is no more the purpose of business than breathing is the purpose of living.'
- Promote a culture of inclusion: Reflecting on the duty of leaders to promote a culture of inclusion to realise the benefits of a diverse workplace Mr Carney advised leaders: 'in a world of division, fusion will bring breakthroughs. Select your teams wisely and recognise that while diversity is a reality, inclusion is a choice. Take it'.
- Humility: Mr Carney identified humility as a key characteristic of successful leaders commenting that leaders should be ready and open to listen to different points of view, and ready 'engage people’s intuitions and win their trust in order to convince them'.
Purpose 'is always broader than a simple bottom line' and is not a 'nice to have'
Mr Carney stated that ambition in leaders is a necessary trait, but that it should be 'grounded in the purpose' of an organisation not in individual success. He added that the actions of the leaders of the BoE should be grounded in the BoE's purpose to ‘Promote the good of the people of the United Kingdom by maintaining monetary and financial stability’. Speaking more broadly, Mr Carney listed a number of benefits of acting with 'purpose' including the fact that purposeful companies have higher employee engagement; greater customer satisfaction; tighter supplier linkages and better environmental stewardship. The 'pay-offs to purposeful business' are superior share price performance, better operational performance, lower costs of capital, smaller regulatory fines and greater resilience in the face of shocks he said.
The role of social capital
Commenting on the importance of building social capital in the context of the finance sector, Mr Carney stated that social capital as well as economic capital was and is necessary in order for the sector to 'operate, innovate and grow'. Mr Carney added that to maintain social capital, 'finance ultimately needs to be seen as a vocation, an activity with high ethical standards, which in turn conveys certain responsibilities. Those responsibilities recognise that finance is not an end in itself but a means to promote investment, innovation, growth and prosperity'. Mr Carney noted the role of a number of reforms on foot — for example, Senior Managers Regime and industry led Codes of Conduct — as important in helping to embed 'purpose' in financial services including by making culture the responsibility of the CEO and the Chair and 'tasking industry with devising standards that take into consideration the needs of the system as whole'.
Leaders as stewards
Mr Carney stated that leaders should be 'stewards of the purpose' of their organisation. He added that leadership is the 'acceptance of responsibility rather than the assumption of power. True leadership is not an end in itself but rather as a means to accomplishing a worthwhile goal'.
Diversity and inclusive culture
Mr Carney identified recruiting 'the right people' ie people with a diverse range of experience; background; ethnicity and gender as key to effective leadership. He went on to explain the approach the BoE has taken to recruitment noting the changes that have taken place over the last decade: 'Ten years ago the Bank’s graduate intake was comprised largely of economists drawn from just 11 universities… Of the 700 experienced professionals we hired in 2017, almost half were women and a quarter came from BAME backgrounds' he said. Mr Carney went on to outline the benefits of this approach and to emphasise the necessity of promoting an inclusive, open culture, in order to develop talent and realise the benefits of a diverse team:'I’m fortunate that in my role I can regularly share experiences with a wide range of leaders in diverse fields. Of these, the most important sounding boards are my fellow central bankers. In this circle of trust, we can have regular, frank discussions of issues we either don’t understand or that are particularly sensitive'.
Banks in a moral business, but a with a limited scope?
The AFR has published an opinion piece arguing that Australian banks need to 'articulate the greater purpose of the financial industry, not just in dry, economic terms but in moral ones' in order to rebuild their social capital. More particularly, the article argues that companies (including banks) should more clearly articulate their moral purpose as originators of wealth and jobs and refrain from participating in debates around broader social obligations which may, the writer argues, actually detract from the authority of the message. 'If business falls down the rabbit hole of vying for moral legitimacy in the uncertain battleground of social issues, it risks the greater justification of its fundamental purpose' the writer argues. Banks, the article states, 'may be better off insisting that social obligations beyond jobs and prosperity lie very much in the hands of government'.
