find the latest legal job
Freelance Lawyers
Category: Banking and Finance Law | Location: All Perth WA
· Freelance opportunities through Vario from Pinsent Masons
View details
Freelance Lawyers
Category: Other | Location: All Adelaide SA
· • Qualified lawyer with a strong academic background
View details
Freelance Lawyers
Category: Other | Location: All Melbourne VIC
· • Qualified lawyer with a strong academic background
View details
Insurance Lawyer (1 PAE)
Category: Insurance and Superannuation Law | Location: Brisbane CBD & Inner Suburbs Brisbane QLD
· Great Career Opportunity ·
View details
Insurance and Health Lawyer (1-4 PAE)
Category: Insurance and Superannuation Law | Location: Melbourne CBD & Inner Suburbs Melbourne VIC
· New position to support Growth ·
View details
Get serious on reputation, Lloyd’s chief warns

Get serious on reputation, Lloyd’s chief warns

REPUTATION RISK must be taken seriously as a part of good corporate governance if the financial services sector is to regain trust after a series of damaging investigations globally, according…

REPUTATION RISK must be taken seriously as a part of good corporate governance if the financial services sector is to regain trust after a series of damaging investigations globally, according to the chairman of Lloyd’s of London.

Speaking in Philadelphia, Lord Levine said investigations into practices in investment banking, mutual funds and now New York attorney general Eliot Spitzer’s probe of insurance market practices, had left the financial services industry with a battered image. “It [the financial services sector] has been left with a tarnished image in the minds of consumers, regulators and commentators,” Levine said. “But as a sector, our very business is based on trust, and we can no longer be in doubt that governance and proper conduct must take their place at the top of the agenda.”

He added that corporate reputation has never been more important. According to Levine, a one point change on US magazine Fortunes “most admired companies” list makes an average difference of US$107 million to the company’s market value.

“Some argue that we what are witnessing is part of a widespread breakdown in trust between all organisations and their consumers, investors and regulators,” Levine said. “Whether or not you believe that, loss of reputation is now perceived as the second biggest threat to organisations after business interruption — not surprising when today’s brands are worth billions. Where reputation was in the past seen as intangible and difficult to price, few leaders today would argue about its financial importance — just ask shareholders of Enron or Andersen.”

However, there is much that influential executives in the financial services sector can do to repair the damage, Levine said. Conflicts of interest, such as those being probed by Spitzer, should be eliminated. This can be achieved by fostering increased transparency. “In the case of the insurance investigation, it’s the issue of the broker receiving payment from both the client and the insurance carrier,” he said. “In the banking sector, it was the analyst giving false stock information to investors in order to get access to lucrative investment banking business.

“Suddenly the question of who is working for whom is blurred and confusing. But if we are to retain the confidence of the key player in all of this — the customer — we need full disclosure and complete transparency about who is doing what exactly, for whom, on what terms and at precisely what cost. Indeed, without it, you simply do not have the economics on which to base accurate, efficient management decisions.”

Moreover, the financial services industry must communicate more effective with those outside its auspices. The three investigations highlighted practices that the outside world did not understand, he said. While the insurance investigation unearthed illegal bid rigging, the mutual fund investigation and the insurance investigation highlighted practices that were long standing and legal, but questionable nonetheless.

“Whatever our industry, we need to understand that, when something goes wrong, the reputation of the entire sector is tarnished, not just the few bad apples in the barrel,” Levine said. “Society at large does not — usually — differentiate between one organisation and another. We must recognise too that governments often cannot resist the call to intervene wherever they see market failure.

“The lesson is that by communicating better in the first place — and where appropriate working collectively with our peers where we have common interest — we lessen the need to spend lurching from crisis to crisis. In other words, more time communicating and building relationships with consumers, politicians and economic leaders in the first place means less time fire-fighting later down the line.”

Levine added that to avoid further knee-jerk regulatory responses to corporate problems, the financial services industry must develop greater dialogue with regulators on ethics. Globally, heightened regulatory oversight has tended to follow spectacular problems. In the US, the collapse of Enron was swiftly followed by the Sarbanes-Oxley Act, while in Australia, the collapse of HIH Insurance continues to be the root of regulatory reform.

More rules will not lessen the chances of bad behaviour, Levine said. “Rules generate loopholes, and loopholes lead to malfeasance,” he said. “But if introducing more rules won’t work, developing principles of behaviour just might, especially if backed by clear guidance to minimise compliance costs. Ethics has finally become sexy, but you cannot legislate good ethics. We need to move away from a strictly rule-book mentality, avoiding the creation of yet more paperwork and bureaucracy. And in its place, we can work with our regulators to develop and require adoption of ethical principles of behaviour.”

Stuart Fagg is the Editor of Risk Management magazine, Lawyers Weeklys sister publication

Like this story? Read more:

QLS condemns actions of disgraced lawyer as ‘stain on the profession’

NSW proposes big justice reforms to target risk of reoffending

The legal budget breakdown 2017

Get serious on reputation, Lloyd’s chief warns
lawyersweekly logo
Promoted content
Recommended by Spike Native Network
more from lawyers weekly
Quentin Bryce
DV has worsened in a generation: Quentin Bryce
Former governor-general of Australia Dame Quentin Bryce AD CVO has spoken of her deep distress about...
Academics entertain the idea of law without lawyers
Researchers from Queensland will explore some of the most disruptive trends tipped to transform the ...
Please, Continue (Hamlet), Melbourne Festival
Oct 16 2017
Hamlet suffers slings and arrows of top Victorian barristers
Victorian judges and barristers have performed the unique play Please, Continue (Hamlet) at the Melb...
Allens managing partner Richard Spurio, image courtesy Allens' website
Jun 21 2017
Promo season at Allens
A group of lawyers at Allens have received promotions across its PNG and Australian offices. ...
May 11 2017
Partner exits for in-house role
A Victorian lawyer has left the partnership of a national firm to start a new gig with state governm...
Esteban Gomez
May 11 2017
National firm recruits ‘major asset’
A national law firm has announced it has appointed a new corporate partner who brings over 15 years'...
Nicole Rich
May 16 2017
Access to justice for young transgender Australians
Reform is looming for the process that young transgender Australians and their families must current...
Geoff Roberson
May 11 2017
The lighter side of the law: when law and comedy collide
On the face of it, there doesn’t seem to be much that is amusing about the law, writes Geoff Rober...
May 10 2017
Advocate’s immunity – without fear or without favour but not both
On 29 March 2017, the High Court handed down its decision in David Kendirjian v Eugene Lepore & ...