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Blog series – Michael Held

In advance of our event at the Bank of England on 21 March 2017, we asked interested parties to write on the theme: Worthy of trust? Law, ethics and culture in banking…

Note: What follows are my own views and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System.

‘Where were the lawyers!?!’

If you’re not asking that question when you read about a corporate scandal, you should be. Public companies – banks included – are well-staffed with lawyers. But are they well-served?

Why do companies – again, banks included – get into trouble when lawyers are there explicitly to keep them out of trouble?

Maybe what lawyers actually do is not what I think they’re supposed to do. Let’s stay with banks, since that’s what I spend my days thinking about. I worry that lawyers in banks are too often asked by clients, in effect, ‘How close to the legal line can I get?’ Or maybe they’re instructed, ‘Just tell me if this is legal or illegal, not what I should do’.

Worse, I worry that lawyers, intentionally or not, enable this kind of thinking.

How’s that?

In a word, culture. Culture comprises the shared norms that any group of people will develop over time. These are the unwritten—and perhaps unspoken—rules that are communicated largely through behavior. To some extent, each of us takes our cues from our peers and supervisors. By observing others, we discover what is important to the group. We gauge the difference between what is right and what is wrong, between what is successful and unsuccessful.

Sometimes this very basic, human tendency to ‘fit in’ goes too far. It leads to a dangerous level of adherence and lack of questioning. Lawyers in any organisation can get caught up in the same dynamics that can ensnare their clients. We’re not immune from our surroundings.

But that doesn’t have to be the case.

Lawyers can – and should – occupy a role that is both insider and outsider, to borrow a term from Gillian Tett. We should offer our clients both insight and independence.

Insight comes from access to many divisions of large organizations and opportunities to build trusted relationships with a client over time.

Independence comes, in part, from a lawyer’s training, independent code of ethics, and reporting responsibilities that ultimately go up to the board of directors.

In short, lawyers have to understand what happens within a firm and question whether decisions are both legal and ethical. We have to tell clients not only if they may do something. We should also counsel them about whether they should do it.

I do not mean to imply that a lawyer must serve as a priest, a rabbi, or a psychologist. (Although if you are, so much the better!) A lawyer’s advice on culture should always be grounded in law. We must be cautious in venturing too far afield. But in light of recent history, I’d say that lawyers could benefit from some wanderlust.

It is terrific that the Bank of England’s panel on bank culture includes a lawyer—and not just any lawyer. The Lord Chief Justice probably has some things to say on the role of law and lawyers in improving conduct and culture in financial services. I’ll be there, paying close attention.

Michael Held, Federal Reserve Bank of New York