This lecture was given by Prof. Dr. Kohlhof at the International Conference of the 10th. Anniversary
of the Banking Institution of Higher Education, Riga, September 12th. 2002.
Ethics management and banks - opposition or economic rationality?
Ethic questions become more and more a substantial factor of success for banks and companies. Reasons for this are above all the increasing critics towards banks in public, intensified laws and modulation in favor of customers and consumers, as well as increasing consequential charges for illegal practices of bank employees and a general higher meaning of moral conviction on money and capital markets.
following shows the test of registering the different ethic problems
of banks in relation to their customers, in their sociopolitical challenges
and in the managerial sector towards their customers. If necessary,
company ethic solutions are shown in practical.
I would like to present an ethics management idea with three pillars,
namely content, instruments and organization, where principles for
the presentation of ethic codes, influences of ethic questions towards
the bank strategy and the integrity oriented development of the compliance
approach, which is already established in the Anglo-American area,
1. How to register, systematize and interpret economically the ethic problem structures of banks?
2. How to define the "social responsibility" of banks and the credit service sector in general?
3. Which real possibilities are given for systematic quarreling with company ethic questions?
How should an "ethics management" in banks be conceived,
which seems to be compatible with the economic rationality of a successful
Ethic questions are gaining more and more interest in daily bank practice.
- Narrowing of the range of behavior by judgement, regulations and consumer protection rules.
- High consequential charges for illegal, illegitim and trust maring bank behavior.
- Increasing meaning of reputation on financial markets.
- realization, that moral acting and entrepreneurial success are not mutually exclusive but complementary.
1. Bank ethics as institution ethics is a meaningful instrument of analysis for entrepreneurial ethic aspects.
problems are interpreted as conflict of interest, which base on failed
appeal conditions and the resulting captive dilemma:
Individual ethic action approach does often not offer support to solve ethic problems.
Development of credit economical basic order clarifies that legal
appeals for banks have obviously increased if they confront themselves
with entrepreneurial ethic questions.
This applies especially to a strengthened social and municipal engagement, as it is successfully practiced in the USA since many years with CRA (Community Reinvestment Act).
3. Many contractual relations between a bank and its social claim groups, its customers and its business partners, as well as in the internal sector are incomplete, patchy and often without legal basis.
result is that ethic conflicts are often due to non-performance of
contracts. However, the performance of such claims assumes in many
cases an ethic tenor on the part of the bank, realized for its own
interest to be attractive for current and future partners and customers.
are naturally subject to a permanent change, as well as the discussion
about values is in fact always in a constant state of flux. Some call
it a gain of values, some call it a loss. Presently ties return to
traditional religions while sects gain a lot of popularity; authorities
- sometimes also capacities - hierarchies are challenged and no longer
accepted. Ethic virtues are lost: demands towards the state are increasing.
Public spirit and readiness to fellow engagement are on a decreasing.
5. The entrepreneurial ethic escrow issues are based on three different sections:
Bank political sector
5.2 Bank business sector
customer segment of bank both contract partners are uncertain to a
high degree. This is frequently governed by the long terms of business
relations, the incompleteness of their contractual arrangements, the
projection of information and the specific investment or the high
costs for a change in business relation.
one day after a public buying recommendation for major customers through
the analysis department, the bank transferred 44 million Telekom shares.
With that immoral tactics, they put another negative facet in Germany's
share culture and they exploit their better information to burden
f the small private investors which missed out on this placement.
DSW asked for examination of this disputed sale of shares by the German
These customer retention potentials lead to a point of change where customer loyalty is not questioned in case of transgression due to cost reasons. A shortfall might lead to a reduction of the traditional customer relation of to a building up of multiple bank relations.
Therefore ethic care of customer relations will become a strategic factor of success for banks to improve the basis of confidence and to shelve own economical efficiency towards the customers' aspects of good conduct. This does not inevitably mean to agree to all customer requests, but the effect of reputation as a consequence to own inappropriate behavior has to be focussed and to be taken more into consideration.
The system of values and human behavior - this means also banks and their executives - is expressed on three levels. Highest values mean leading ideas which influence the own behavior and shape the "esprit de corps". The second level is dominated by skills, namely the ability to convert economic and ethic efficiency and the third level is determined by actual acting, toleration and omission.
An example of a comparison between two banks: Both banks have same skills and resources. The one is acting according to their ethic occurrence, their collective autonomy and in pursue of their system of values, the other bank surrenders reputation regeneration and just realizes fast profit without consideration of ethic doubts. They only differ from each other in their system of values, which controls their actions and rules their institutional surviving. In perpetuity, the ethic lead company will gain the customers' confidence and the contractual relations.
line of bank action follows to achieve own employees in an ethic line
and to take care for an own good conduct towards all groups: Creation
of leading ideas with an appropriate spread of norms and a code of
behavior, ethic shaped reimbursement and assessment systems, model
function of management by moral leadership in accordance with setting
and care of values. Who does not live to values is acting for the
moment and is fading out the thought of creative growth and development
of human existence.
A frame concept has to contain three different dimensions:
the material-content shaping
Dr. Joachim Kohlhof