Authored by Joe Gentile and John Pellegrino

Companies in all industries spend considerable amounts of money annually to train their managers and employees on how to deal fairly and honestly with their customers and suppliers. To a great degree, the majority of these firms achieve most of their goals. Nevertheless, human nature being what it is, the stated cultural mandates of the organizations are in a continual battle with internal conflicts of interest and potential ethical breaches. This clash has been most recently played out in the case of a large commercial bank, Wells Fargo. Specifically, employees of the bank were encouraged to open ” millions” of “bogus accounts” in order to generate fees tied to performance bonuses for themselves and their superiors. This is a perfect example of where the culture of a company is compromised by a flawed incentive structure or a mania for sales by any means, even fraudulent ones. As more facts are discovered by regulators and advocacy groups, it becomes clear that employees were encouraged by their top managers to maximize overdraft fees; to ignore customers when they say “no”; to ignore the extraordinary amount of customer complaints as well as to not be worried about cross selling abuses. However, the ultimate insult to customers and shareholders alike, was that the very highest level of senior management admits surprise and ignorance to unethical sales practices going on beneath their very noses. Consequently, Congress is once again paying close attention to Wall Street as well as the big commercial banks. It is almost certain that in addition to class action and state Attorneys General suits, Congress will enact legislation to address ethics abuses. 

Recently, FINRA has focused its efforts on how member firms specifically establish, communicate and implement their cultural values and whether those values are guiding business conduct. This area is now a top priority for FINRA and they will expect top executives of their members to become personally involved to ensure a seamless bond between the member’s cultural values and its treatment of its clientele. FINRA will focus exclusively on the following:

(1) How FINRA members communicate and reinforce their cultural values;

(2) How they document their efforts to set the right tone for their business activities and what steps they take to correct deviations from a “best practices” philosophy;

(3) Are the member’s incentives for performance consistent with good business practices and, if not, how they have been modified to achieve compatibility; 

(4) And finally, how does the firm measure compliance with its cultural values, including metrics used, if any, in order to monitor for consistent application of its values throughout the organization. 

Global Markets Advisory Group is well positioned to lend assistance in helping firms draft comprehensive ethical conduct standards, including Mission Statements, supporting your firm’s cultural values.