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Why is character such a ho hum topic these days?

It's time to focus harder on what matters

It seems that everyone involved in extending credit pays lip service to the idea that Character is the most important attribute in a borrower. This is certainly a durable "belief." But how fundamental is it to our business interactions?


There are certain biases at work here.


Most of us, in thinking about our workplaces, actually believe that collectively each of us works in an ethical environment. If there are widespread problems in the workplace today, they are primarily in someone else's place of business.


"We run a pretty ethical shop" is the prevailing sentiment.


There has been a great deal of research in recent years that confirms this tendency. And after all, if we agree that character is important, we neither want nor expect to find significant lapses within our corporate environment. But, how accurate is this perception?


An industry that stands for something

Banking represents a business that has traditionally been associated with the ethical high ground. Historically, banks and bankers were considered safe, reliable, honest, and trustworthy. Then we learned about subprime lending; perverse economic incentives that rewarded wrong sorts of behaviors and outcomes; sloppy underwriting; and a host of other behaviors that tarnished our reputations.


No matter that the problems at least by size and scope were concentrated in banks that were by any standard truly industry giants by assets and bore little relationship to the majority of banks.


Generations of trust and the perceptions that our reputations rested on solid foundations of ethical behavior were swept away. What may have saved our industry were some timely and strategic interventions by government and the Federal Reserve . But what was lost was any sense of accountability. It's not that a price wasn't paid--but so often it seemed as if the wrong people were paying it.


The huge assaults to the industry's reputation risk have been very, very costly especially in the area of mortgage underwriting and collecting practices. (Editor: One  result, through the Dodd-Frank Act, is the "qualified mortgage" regulation recently released by the Consumer Financial Protection Bureau.) The embarrassment to some previously iconic business brands has been enormous and continues.


How could this have happened so broadly within an industry that professes to value personal character as an essential ingredient of business transactions?  I think that we've largely missed a larger point that has societal implications for how we conduct not only lending, but all business enterprise.


Ethics research paints dismal picture

The Ethics Research Center is a nonprofit organization located in Arlington, Va. The Center is devoted to independent research and the advancement of high ethical standards in public and private institutions ( In 2011, it published its seventh national survey of business ethics, a series begun in 1994.


This has now become the largest longitudinal study of its kind. The questions have been refined over the years to reflect evolving understandings of workplace behaviors and attitudes. The results tell us quite a bit about who we are as an ethical society. While the survey for the latest period shows elements of both "good news" and "bad news" there is a consistency in the results over time that is worthy of our inspection, understanding, and concern.


In 2011, 4,800 employee workplace responses were collected. After eliminating responses for government sector employees, 4,683 responses reflected participation by private sector (for profit) employees. The survey was based on individuals working more than 20 hours a week and employed by businesses comprised of two or more people. The results are a statistically valid national distribution with a sampling error of  +/- 1.4% at the 95% confidence level.


Overall, 45% of the respondents reported that they had recently observed misconduct in the workplace. Here is a small sample of the frequency of the behaviors reported:


            Misuse of company time                                            33%


            Abusive behaviors                                                      21


            Discrimination                                                            15


            Lying to outside stakeholders                                      12


            Sexual harassment                                                     11


            Misuse of proprietary company data                               5


            Misrepresenting financial records                                   5        


When these latest results are put into the context of overall trend lines, there has been some progress over 17 years in some areas and deterioration in others.


The overall results reflect a continued and disappointing level of behavior in the private sector workplace.


Thirteen per cent of survey participants reported an increase in pressure to pressure to compromise their employers' ethical standards or policies or even to break the law. This is the highest level since 2000 just before a wave of corporate scandals triggered new emphasis on corporate ethics.


A curious result of the latest survey is that the responses of those who are extensive users of social media are in some ways significantly different than other respondents. This will bear watching and suggests the need for additional research and understanding.


We can do better

I've lived long enough and worked extensively with problem borrowers--so ethical lapses don't really surprise me. But they are always disappointing. My disappointment continues giving rise to heightened concerns regarding exposures to compliance, legal, and reputational risk. And it's important to note that the exposures can arise in our own workplaces as well as those of our customers and prospects.


Then there is the abiding realization that the personal character of those with whom we conduct our business will always be important and should not be taken totally for granted. This is especially urgent when we consider how dependent the success of our personal relationships is on mutual trust.


Trust is the bedrock foundation of human interactions and it's a sad commentary on our times that this reality must remain top of mind and to some degree be considered in anticipating and observing the behaviors of others.

Ed O’Leary

Banking Exchange Contributing Editor Ed O'Leary, a veteran lender and workout expert, spent nearly 50 years in bank commercial credit and related functions, working with both major banks as well as community banking institutions. His last job before retiring was as the CEO of a regional bank headquartered in Alburquerque, N.M. He earned his workout spurs in the dark days of the 1980s and early 1990s in both oil patch and commercial real estate lending. O'Leary began his banking career at The Bank of New York in 1964, and worked at banks in Florida, Texas, Oklahoma, and New Mexico. He served as a faculty member and thesis advisor at ABA's Stonier Graduate School of Banking for more than two decades, and served as long as a faculty member for ABA's undergraduate and graduate commercial lending schools. Today he works as a consultant and expert witness, and serves as instructor for ABA e-learning courses. You can e-mail him at [email protected]. O'Leary's website can be found at

In mid-2016 O'Leary's "Talking Credit" blog received a bronze excellence award for the Northeastern Region from the American Society of Business Publication Editors.

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