November 11, 2020 • Jason Dressel
The following article first appeared in The Financial Brand in November 2020.
Amid a national reckoning on issues related to race, executives have been rushing to atone for certain past practices. Signs of how much things are changing include Lloyd’s of London’s recent apology for its role in the Atlantic slave trade, JPMorgan Chase committing $30 billion to help close America’s racial wealth gap, and California requiring racial diversity on corporate boards and exploring ways to make reparations for slavery.
With this as a backdrop, financial institutions should consider examining their own pasts. Beyond obvious problems related to involvement in the slave trade or discriminatory mortgage lending, the disclosure of past financial improprieties might land a bank in hot water, according to research by History Factory. That means it is important — especially as the highest levels of corporate America call for change on issues of social justice — that financial leaders work to understand sentiment around revelations of problematic issues in their companies’ histories.
The History Factory research shows that C-suite executives and other officials are generally unprepared, even though most of them know there are issues lurking in their corporate pasts. Here are the main takeaways from the research, which compares the beliefs and sentiments of C-suite executives, investors and consumers. We’ll conclude with tips on how financial institutions should investigate their own pasts.
While 76% of C-suite respondents say they know about something in their corporate pasts that might conflict with today’s ethics and standards, just 26% say they are very prepared if those issues come to light. This is an important and troubling schism to consider — as are the divergences in what executives are most worried about compared with consumers and investors.
Executives are most concerned about how consumers would react to racial injustice, sex or gender discrimination and — significantly for banks and credit unions — financial improprieties. On the other hand, consumers say they would react more negatively if the revelations were about potentially divisive social or political causes or environmental negligence.
Executives are also wrong about what consumers would do if troubling past actions came to light:
Simultaneously, nearly three-fourths of executives say that they would expect consumers to regain trust in a brand based on corrective action, but only 56% of consumers surveyed say they would.
Banks have another “public” beyond consumers. These are the investors who hold shares in publicly traded banks. C-suite executives and investors are nearly in lockstep when it comes to how the discovery of past financial improprieties would affect investment considerations. These findings are especially important for financial services companies given that finance is the business of their business.
Closely aligned, 64% of C-suite executives and 66% of investors surveyed say discoveries of financial improprieties would have a significant impact.
And investors also aren’t afraid to change their investment strategies when faced with a troubling discovery. 29% say they would dismiss an investment entirely and 60% say they would place specific contingencies on any deal.
Whether investors’ bite would be as fearsome as their bark — i.e., whether they would in fact pass up a big payday when faced with a troubling revelation — is open to debate. But 32% of investors surveyed do say they are very or somewhat unlikely to regain confidence in a company from an investment perspective after a troubling past action emerges.
Racial tensions reached a fever pitch in summer 2020 following the killing of George Floyd in Minneapolis. Just a few months later, all three groups in History Factory’s survey say they favor reparations if instances of racial injustice are discovered in a company’s past — though this broad agreement didn’t include any details.
Examples abound of racial injustice in the histories of banking and insurance companies. These may range from using slaves as collateral to making it difficult for Black Americans to get mortgages. However, individual banks’ histories can be difficult to unpack because of the nature of the highly transactional industry.
Making things harder still is the banking industry’s long history of mergers. Most larger banks are comprised of hundreds of smaller banks that were rolled up over time. A smaller bank’s forgotten actions decades ago could come back to haunt the larger bank that absorbed an institution that absorbed it, way back to the 1800s perhaps.
Several municipalities across the country, including Chicago, require all financial services firms to disclose whether they’ve profited from slavery. It is likely that many banks of a certain age, or banks that acquired older banks, have financing dealings related to slave ownership in their pasts.
These insights and the misalignment among the C-suite, investors and consumers should prompt financial institutions to proactively explore their corporate histories. With things changing so fast — consider that COVID-19 could make consumers and investors more sensitive to workplace issues even if problems happened decades ago — companies shouldn’t wait to examine their organizations’ histories. Marketing department and marketing officers will play a part in these efforts at some point.
The task should be addressed in a structured way. Here are four considerations for assessing where your company may have vulnerabilities from past actions:
1. Start with a framework. Past actions that can be problematic today generally fall into one of four areas of action by a company: shady business practices such as insider trading, espionage or predatory practices; harmful treatment of people, such as discrimination in the workplace or workplace safety; violations of human rights such as health and safety or complicity with atrocities; and negative environmental or geopolitical practices such as harm to ecosystems or neocolonialism.
2. Do the research. Your company has an abundance of resources both internally and externally that can surface potentially troubling discoveries. Media coverage, internal communications, annual reports, court filings, academic studies and documents (both published and unpublished) are just a few.
3. Use the Three Ps. Look through the four areas of the framework through the lens of your three Ps: People, Products and Processes. Generally, a problematic incident can be found where people were looking to gain an advantage when implementing process to deliver on a product or service.
4. Apply context. If you find incidents of concern, consider them in a fuller context:
Context is critical to understanding how threatening the discovery may be and how to respond.
It’s not as if companies must uncover the details of every incident from decades ago. But identifying general areas of risk is crucial in determining next steps — i.e., whether the company should immediately go public with its findings, acknowledge the problems and try to make amends, or simply create plans to have in place if the past actions become public down the road.
Keep in mind that a proper corporate heritage assessment will discover not just what a company did decades ago that is now unacceptable but what it might have done that was unacceptable even at the time. Fully understanding both types of problematic past actions has never been more important — because corporate pasts are becoming as important as their presents and their futures.
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