Lehman sisters: is there a connection between gender and ethics?


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There has been much discussion from commentators, notably Harriet Harman, about the idea that had Lehman Brothers included women at the very top, the recent financial crisis may not have happened.

Why has gender arisen in relation to financial outcomes? The Lehman Sisters proposition is that the maleness of the bankers is significant, or even causal in the financial crisis.

A scientific view from John Coates, ex-banker turned academic, and a neuroscientist, Professor Joe Herbert, who tested 17 traders male traders for testosterone and cortisol hormones showed that 'traders with the highest morning testosterone levels were likely to do best in the day's trading. That success pumped their levels higher, so they behaved more aggressively and did better still'.

A secondary effect showed that 'a previous win in the markets leads to increased, and eventually irrational, risk taking in the next round of trading'. Fear is measured by raised cortisol when the market 'turns' and the trader's confidence crashes. And 'people get paralysed by the fear. [It] takes over so they are no longer thinking rationally. They are no longer doing the things that they should be doing to make money'. Conclusion : male bankers' chemical swings are responsible for booms and busts!

Behavioural research from Rotterdam University, is diffident. A review of male and female workers in the Netherlands finance industry concluded little solid measurable behavioural difference between the genders: but that female financial professionals took a more 'contextual' approach to risk analysis.

Supposing research did show clear gender differences in risk taking. What would be the consequences if research did point to an 'ethics gene' or some gender related predisposing factor for ethical and non-ethical behaviour?

Is it foreseeable that recruitment to sensitive positions could be based on ethical performance, or even more provocatively, on gender on the grounds that being female is a genuine occupational qualification, on physiological grounds, much like being Italian is essential to working in an Italian restaurant?

Ethics has become fashionable, and addresses the asymmetry of information available to parties in a decision. Typically, one thinks of the doctor / patient relationship.

The financial world has now reached a level of complexity, which is beyond most people's understanding. Revelations about debt securitisation, disguising the sheer risk from sub-prime loans is an example of the tortuous development of financial products. What normal consumer, who has a typical range of financial products such as a mortgage, pension, or an ISA would guess that experts thought it a good idea to lend to people who could not afford to repay? What kind of financial advisor gave such advice?

Ethics was recently described as irrelevant in the thinking of some tabloid newspaper editors in the Leveson Inquiry. Were some editors recruited and paid only on the basis of newspaper sales? Likewise, are the financial 'rocket scientists' who dream up these exotic products, beyond the understanding of their bosses, paid only on the basis of their sales ?

So how would ethical behaviour be useful? Ethical behaviours include expressing foresight that some risks have a terrible and probable downside. But ethical behaviours would have to yield the expected high profit levels. Is it likely that recruiting is targeted at alpha males who are prepared and trained to live with high levels of testosterone, which facilitate risk, taking? HR input is critical here, and ought to present a 'long view' to the Board that traditional selection and recruitment criteria are a significant risk to the health of the organisation.

Journalist Joris Luyendijk's under-cover reports point to the increasing consciousness of finance institutions to their statutory obligations. 'Banks these days are incredibly PC about motherhood… One week it's diversity week, the next it is I don't know what week'. 

Diversity at the top is a permanent challenge in any large organisation. Management boards seek stability in their structures. Keeping cohesion and momentum on boards can be a tricky business when some board members are non-executive, and not always in attendance. Meetings are infrequent. Continuity is strained.

But senior women in the public finance sector, such as the indomitable Christine Lagarde managing director of the The International Monetary Fund (IMF) have surfaced. The IMF was recently criticised on the choice of the appointment. The BRIC nations expressed a wish to see a non-European in charge. One could argue that they merely wanted 'one of their own', and so, what's new.

There is every reason for female clients and shareholders to express a desire to see 'one of their own' on senior boards, in the hope that outcomes will be more favourable for them, in the belief that women's ethical behaviour produces more stable results. Increased ethical behaviour could and should produce better long term outcomes, fewer failures : i.e. decreasing crises.

The finance sector could place itself in public favour if it showed willingness to explore the Ethics of their HR. The finance fraternity could agree to an independent Board of Ethics, which would examine candidates on a recurrent basis. Recruiters would need to include the Ethics dimension in their interviewing and selection techniques.

How will HR departments in large organisations evaluate this attribute? Here is the crunch. Results would have to be seen in a longer term.

Col Murray, is a consultant at Chiltern HR


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