Survey: Financial services firms struggle to find accountability balance
Executives differ on accountability needs; continued risk management, customer commitment loom
Even after the financial crisis, accountability expectations and risk attitudes differ widely across financial services. The latest annual risk survey from the Economist Intelligence Unit (EIU) found that 73 percent of financial leaders are improving information shared with external stakeholders to increase transparency and reduce risk. Yet respondents are still trying to find the right balance between internal and external accountability. Surprisingly, 84 percent of financial leaders rank short-term performance as a high priority yet only 62 percent believe being "socially responsible" is as important.
For the fifth annual study sponsored by business analytics leader SAS, Society, Shareholders and Self-Interest: Accountability of Business Leaders in the Financial Services , EIU interviewed 387 C-level executives globally in April and May 2012 on key industry and risk management issues. Two-thirds of responding companies reported annual revenues of more than US$500 million. Seventy-eight percent of respondents were from the financial services sector and the remainder from energy and utilities.
While risk management and accountability have improved since the crisis, an organization's risk culture must be above reproach to be effective. Genuine accountability to informed post-crisis stakeholders should include a commitment to reducing risks of future economic shocks. Spurred by regulations such as the Dodd-Frank Act, Basel III and Solvency II, almost 75 percent of respondents from financial firms have employed new systems or models minimizing high-risk practices to protect both customers and organizations. However, investment banking lags behind retail and commercial banking as well as insurance.
Koos Timmermans, Vice-Chairman of ING Bank, explained that "reducing risk … increases accountability to shareholders, whose investments are more secure, and to society, which also feels safer. Looking after customers properly is … prudent commercial behavior, which of course ultimately benefits shareholders."
Also, social media and consumer websites have led to greater scrutiny and transparency in these industries. Increased public discussions of complaints and demands have pressured organizations into greater accountability to manage these new channels.
According to the survey, C-level leaders still wrestle with the balance between serving shareholders and larger societal good. Most consider themselves highly accountable to their board, regulators and investors; yet only 54 percent feel accountable to society. And only one in four C-level executives in financial services wanted to be more accountable to society.
Sunil Misser, Chief Executive of AccountAbility, said, "True executive accountability is considered harder to establish in financial services because there is little consensus on what precisely executives should be accountable for … the world of finance is perceived as one overall 'system' and executives therefore find it easier to evade criticism by blaming an intangible market."
CEOs and CFOs disagreed about accountability and risk management. Only 16 percent of CEOs said business leaders should be more accountable to society, compared to 33 percent of CFOs. Similarly, 55 percent of CEOs think public opinion has little impact on C-level executive accountability for failure or misdemeanors, while only 15 percent of CFOs agree. And although eight of 10 CEOs believe their organizations have adequately improved risk management, only 65 percent of CFOs in financial services concur.
The EIU survey results reveal a financial services industry still struggling to balance short-term and bottom-line results with longer-term and wider societal goals. Better risk management systems and even more transparency in pursuit of corporate goals can help these firms be more accountable to both society and shareholders.
Read the full survey report: Society, Shareholders and Self-Interest: Accountability of Business Leaders in the Financial Services .
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