First in Series: Calling All (Crisis) Leaders to Rebuild Trust in the Finance Industry

The financial industry is undergoing one of the most tumultuous
times in history and the consequence has been a precipitous decline in
the public’s trust in the industry and in its leadership.  Over the
next few weeks I’ll provide an overview of the construct of trust,
describes why crisis events erode trust, and offers guidelines for how
to rebuild trust following a crisis.  Using the principles of crisis
leadership as a backdrop, I’ll demonstrate the significance of
integrity, positive intent, capability, mutual respect, and
transparency on the trust building process.   Here I present the first
in a series of blogs on Rebuilding the Image of the Finance Industry through Trust:

In a two week period in the fall of 2008, the U.S. witnessed the
shocking collapse of several of its most seemingly stable and secure
financial institutions.  On September 14 Merrill Lynch entered
bankruptcy and was quickly acquired by Bank of America.  The next day
Lehman Brothers filed for bankruptcy, was split up, and portions of the
former firm were purchased by Barclays.  The following week the
nation’s largest savings and loan association was placed into
receivership, ironically on the same day as that firm’s 119 year
anniversary.  The demise of Washington Mutual represented the largest
single bank failure in American history. The landslide of financial
failures started several months earlier when Bear Stearns, once
recognized as the “Most Admired” securities firm in Fortune’s
“America’s Most Admired Companies” survey was acquired by JPMorgan
Chase for $10 per share, down from the 52 week high of more than $130
per share.  Among them, these once stalwarts had almost 450 years of
history, having previously survived other economic downturns, including
the Wall Street Crash of 1929.

And banks and lending institutions were not the only industries
affected by the crisis and in need of federal support.  America’s
largest insurance company, AIG, was close to insolvency before the
federal government intervened granting the company a sizable portion of
a $700 billion “bailout” formally called the Emergency Economic
Stabilization Act of 2008.  America’s big three auto makers (General
Motors, Ford, and Chrysler) have met with the U.S. congress on multiple
occasions to request bailout funds.  (Their initial visit to Capitol
Hill resulted in a failed attempt to secure funds and a public
relations nightmare for the auto companies when all three executives
independently arrived in Washington, DC from the Detroit metropolitan
area on their private corporate planes.) The public outcry toward this
extravagance suggested that the executives were incapable of fiscal
management.

Needless to say this is a tumultuous time for executives and leaders
in the finance industry and the events of 2008 will become a footnote
in history.  But in the meantime the industry is faced with a
considerable dilemma —an overwhelming lack of trust.

Several years before these recent events occured executives expressed
concern over the public’s trust. The Business Roundtable’s Institute
for Corporate Ethics surveyed CEOs and found that regaining the public
trust, effective management in the context of investor expectations,
and ensuring the integrity of financial reporting were the three most
important issues they faced.   Their challenge is exacerbated because
the public experiences an insurmountable power imbalance (Business
Roundtable Institute for Corporate Ethics, 2009), where the industry
holds the lion share of the power and is able to make decisions and
take risks in ways that have tremendous impact on its stakeholders. 
Accompanying an imbalance of power is an imbalance in risk assumption
and vulnerability, with the public assuming more risk than either an
individual firm or the industry.  With limited understanding and
knowledge about the activities of the industry, the public is naïve to
the potential impact of the industry’s behavior until something goes
terribly wrong. When it does, the public loses faith in the industry
and in its leadership.

How can the financial industry rebuild its image?  I’ll address the answer in the second blog in this series, coming soon…