Banks must change a culture of paying staff commission on sales and put less focus on short-term profits in order to repair their battered reputations, the new chairman of British bank Barclays said on Wednesday.
“It’s very important we see changes in remuneration practices (that are) tied to sales or revenue,” David Walker told British lawmakers at the start of a three-month inquiry into the banking industry’s standards and culture.
Walker, who authored a 2009 report into corporate governance in banks, will take over as chairman of Barclays in November, charged with rebuilding the reputation of a bank tarnished by a record fine for manipulating interbank lending rates.
Barclays is also battling to recover from a number of broader industry scandals, including the mis-selling of insurance policies and interest rate hedging products to small businesses, and banks’ hunger for profits is widely blamed for causing the 2008 financial markets crisis.
The Parliamentary Commission on Banking Standards inquiry was launched after Britain’s government came under pressure to scrutinize banks more closely.
The Commission is expected to call bosses from all top banks and also regulators, consumer groups and other interest groups, aiming to make legislative proposals by Dec. 18.
Walker, 72, said banks’ integrity had been damaged by a race for market share and too much attention on innovation driving short-term profits.
“Making quick returns and keeping abreast of competition overtook old fashioned concerns about integrity,” he said.
Walker said he would not have joined Barclays if he didn’t think change could happen.
“In the present environment can the cultural changes be accomplished rapidly? Yes, and they have to be,” he said.
“The reason I am confident is that in the recent past boards have just not been focused on culture. Now, because of all the things that have bubbled up to the surface there’s a new focus on culture.”
Changing remuneration was key to start that process and he said sales staff should consider the reputational impact on a bank before the profit, echoing comments by new Barclays chief executive Antony Jenkins this week.
So-called “free” banking provided by British banks to current account customers who remain in credit has contributed to the mis-selling scandals, Walker added.
But he said any bank that stopped the offer would suffer compared to rivals, so it was hard to end the offer of “free” current accounts from within the private sector, hinting that regulators or government might need to intervene.