Banks are not immune from the principles of general systems theory: An. organism interacts with and is affected by its environment, and survival depends upon the capacity to adapt to charges in the environment.

The changes in the banking environment are no less profound than those in the geopolitical world: globalization, intense foreign competition, frenzied merger and acquisition activity, consolidations and work force reductions, shifting work force demographics, and confusing signals from regulators.

Perhaps the biggest change and greatest challenge for banking leaders is the global abundance of instant knowledge. It has virtually eliminated the communication "float" that formerly cushioned the shocks of awareness and change.

The availability of information leaves banks increasingly subject to criticism by the media, competitors, regulators, and others. Witness the savings and loan scandal.

Fear of Change

Without question, change is a destabilizing influence. It represents a powerful threat to organizations and individuals. It creates not only uncertainty, but also fear.

As changes continue to sweep through the banking and financial services industry, a thorough understanding of ethics and values has become paramount for effective leadership.

Ethics is the language that aligns leaders with their employees, customers, shareholders, suppliers, and community. For a variety of reasons, including changes in the law (e.g. the federal sentencing guidelines), comprehensive ethics programs have become a necessity for corporate survival.

Values enable an organization to absorb change.

The failure of leadership to align ethics and values with business strategies and operating plans bears potentially heavy costs. The minutes to many bank board meeting are littered with examples.

Need for Compatible Strategy

First, anyone who has spent five minutes in an executive suite knows that a strategy incompatible with a firm's culture will be difficult if not impossible to achieve.

Witness the numerous commercial banks that unsuccessfully attempted to develop investment bank strategies, and almost as many savings banks that failed to develop their commercial lending initiatives.

Second, change and volatility create anxiety. Managers become so focused on a desired outcome that they sometimes fail to recognize the consequences of their actions.

This may have been a contributing factor not only in the Treasury auction manipulations at Salomon Brothers, but also in the decision by its former top management to withhold that information.

Values Out of Sync

As a result of telecommunication and information advances, gaps are emerging in our common understanding, and values become quickly and easily misaligned. For example:

* Community groups and regulators are challenging banks' on the fairness of mortgage lending practices and community reinvestment.

* Employees and shareholders are questioning bank leaderships - long dominated by white males - about their commitment to affirmative action.

* Layoffs, pay freezes, and the growing compensation gap between top management and the rank-and-file does little to nurture the desired loyalty and dedication of employees.

* The confirmation process for Associate Justice Clarence Thomas and the Rodney King trials in Los Angeles have substantially raised sensitivities toward sexual harassment and racial discrimination.

In short, there isn't anyplace to hide any more. The alignment of values between an organization and all of its stakeholders is imperative for success in the 21st century.

Management Standard

The starting point for all this is a strong ethical concern for an organization's stakeholders, articulated by top management and in a company's system of values.

Words that cannot be put into action, or actions that cannot be spoken about, are equally dangerous to corporate moral development. Top management must set a moral standard and be prepared to address critical and social business issues openly.

Next, bankers must integrate strong ethical standards into their corporate culture and business objectives, which are powerful influences on the behavior of employees.

Many banks, especially larger ones, have multiple cultures that often vary by geography and product lines. Executives must be attuned not only to the "formal organization," but also to the "informal organization" - the silent, less visible way of "getting things done."

Cultural Differences

Each bank must open itself up to a broad definition of cultural standards. A bank increasingly is made up of people from diverse cultures and backgrounds, each of whom brings particular strengths.

While setting appropriate standards of expected behavior, executives must also listen for the cultural differences being introduced by the demographically changing work force, and honor and value those differences.

A fully integrated, comprehensive effort begins with a code of ethics. But the words are in many cases less important than how they are developed, implemented, and understood.

Regulatory changes make the failure to integrate ethics and values into a bank's business plans increasingly dangerous and very expensive. The U.S. Sentencing Commission's guidelines to the federal prosecutors and courts have fundamentally altered the scope and definition of management and corporate responsibility.

In the most significant government campaign ever waged against white-collar crime, top executives and directors may now be subject to substantial personal risks - including fines or jail sentences - even when an employee may have acted contrary to explicit instructions.

A comprehensive program for communicating values and defining clear behavioral expectations throughout the firm can meet the commission's standard of "effective compliance." Such it program can include such mechanisms as auditing procedures, performance goals, incentives systems, organizational structures. and effective education and communication.

Ethics in banking never was a luxury. Today, more than ever. alignment of values is a necessity and crucial for success. Survival depends on it.

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