The Website of Dr. Mark Goulston

Integrity–noun: adherence to moral and ethical principles; soundness of moral character; honesty.
- Dictionary.com

In David Lazarus’ Sunday, June 21, 2009 Los Angeles Times column, “Taking integrity to the bank,” he spoke about the need for President Obama’s proposal for a regulatory agency to watch over the banking industry. This move is not intended to curb financial growth, but to protect the consumer from a now historic tendency by that industry to put its own greedy needs ahead of the trust of those it serves.

Here is the challenge. Can a greedy, self-justifying zebra like the banking industry change its stripes? Stated differently, can there ever be honor amongst thieves when they are, as Lazarus begins his column, “in denial?”

Regulation is certainly an understandable and necessary, “damage control” first response that seeks to control these companies from the outside in. However, I worry that it will be no more successful than putting in place a restraining order against a psychopath that is hell bent on defying it.

For true reform to take place, it has to occur from the inside (of bankers) out. To do that, banks and bankers must respond to the 4 H’s with the 4 R’s.

When the trust of consumers was savagely taken away, it triggered the 4 H’s of Betrayal:

1. Hurt – consumers have felt wounded by discovering that what they were told about saving for the long term (and many other things) by not taking risks was a lie.
2. Hate – after the pain of that initial wound has lessened sufficiently and they realize they haven’t been killed off, consumers hate the banks for lying to them, betraying them and rendering the world as they know it unsafe. In essence the bankers have done to consumers on an equal scale what terrorists did on 9/11.
3. Hesitation to Trust – when as safe as they thought they were is as unsafe as they turned out to be, consumers are not going to let their guard down soon and risk being betrayed again. That is fueled by the fact that the first betrayal/trauma may not have killed them off, but they fear a second one would. It is this fear of not being able to survive re-traumatization that fuels their guardedness.
4. Holding onto a Grudge – even if they could move past the Hurt, Hate and Hesitation to Trust, consumers will still Hold onto a Grudge. In that way they will have an automatic, built in deterrent to letting the banks hurt them again. You can’t hold a grudge and let someone through at the same time.

To address the 4 H’s of Betrayal, banks and bankers will need to follow The 4 R’s of Reform.

1. Remorse – this is the only response that Hurt will understand and accept and is the most difficult one for bankers (and most people) to offer. It is much more than Regret, which is simply saying: “I’m sorry. Trust me.  It won’t happen again. Now can we just move on?” It is looking into the eyes of the people a banker has betrayed, seeing in them the trust they broke, the deep and possibly irreversible injury they caused and saying from their heart: “I betrayed you. I lied to you. I broke your trust and a part of you. I was wrong and I did wrong.” The reason this is so critical and usually so lacking is that consumers need to see bankers knowing and feeling firsthand the pain they inflicted so that knowing how bad it felt, they wouldn’t do it again. Looking unflinchingly into the eyes of a person they harmed (imagine a rapist looking into the eyes of their victim at sentencing) and feeling embarrassment, humiliation, guilt and shame are the only things that will cause a consumer to believe that bankers will finally understand the damage they did.  It is only when bankers experience that deep penetrating pain that they’ll get a taste of what betrayal feels like.
2. Restitution – after showing true remorse the bankers need to offer a payback for the injury they caused. The Hate that victims feel requires this. Initially it involves bankers pausing to hear out and feel whatever their victims care to show them through their eyes and words (imagine “Hell hath no fury as a person who has entrusted their life savings to you, that you stole from”). But that is just the beginning. What victims need to then receive is an actual payback possibly in the form of legal prosecution, but furthermore in the form of an actual payback. No banker that made so much money off the backs of people they misled or lied to should have a second house or extra car while his victims have been foreclosed and maybe even rendered homeless.
3. Rehabilitation – this addresses consumers’ Hesitation to Trust. Unless consumers see that banks have a new way of pursuing their ambition and desire to make money that doesn’t cross the line into lying or manipulation, they are not going to trust the banks again. Furthermore, in order to truly believe that the banks have changed, consumers will need to see that the banks actually like and prefer their new “integrity based” values in doing business (think of the philandering husband who has learned to communicate his disappointment, frustration and hurt to his wife, before he acts out on it by cheating). This will be difficult, because ambition and integrity do not generally co-exist.
4. Request Forgiveness – after the banks have had a track record of at least 18 months of the first 3 R’s, which is the minimum time to replace the truly incorrigible, unscrupulous people in their ranks and then to internalize these values, banks will have earned the right to request forgiveness. Since you can’t undo what has already been done, this is all that the banks can do. At this point the banks and bankers that have followed the first 3 R’s are no longer unforgivable, those people who still refuse to trust are unforgiving.

That’s it. The 4 H’s of Betrayal and 4 R’s of Reform are the only steps necessary to repair the loss of consumer trust (a fascinating fact to me is that you can still increase consumer confidence without restoring consumer trust, but that is the subject for another column).

Unfortunately, I don’t have high hopes that this can or will happen. I don’t know many – or for that matter any – people who can make it through the first step of looking into the eyes of the people they have injured to their core, see the damage they wreaked, keep looking at it and admit they were wrong and then accept the punishment they deserve.

Tags: banks, economy, finance, integrity, obama, regulatory reform

This entry was posted on Sunday, June 21st, 2009 at 10:51 am and is filed under Articles, Career. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.