ANALYSIS:Tighter regulation and a change in attitude towards corruption can help to end the crisis, writes DONAL CASEY.
SILVER LININGS are in short supply these days. The depth of our recession has been exacerbated by its suddenness and it is doubly painful to be poor again having experienced prosperity. A nation in shock, we are rapidly moving into a phase of deep anger.
Reversing from rich to poor at this speed puts enormous strain on the cohesiveness of a society. The emerging threat to social order has turned a banking crisis into a political crisis. We need an intense yet measured debate regarding the policy options most likely to accelerate recovery and a general election would facilitate this national conversation. The process of debate matters more than the candidates since it has the potential to rebuild the social cohesion needed for the hard road ahead.
The opportunity in any crisis is proportional to its depth. The acute pain we are experiencing can generate the collective resolve required for fundamental change. As a starting point, we need to rebuild all of our governance systems from the ground up. Attempting to muddle through with the status quo is not a viable option.
Part of the rebuilding process will involve more regulation and tighter policing of these rules. The clarion call for a new regulatory system is almost deafening. We need to be careful about drawing too much comfort from more stringent rules. No regulation can protect us from the root causes of the total system failure in our banking sector, which allowed greed, corruption and the abuse of power to operate without hindrance. No set of written reports, disclosures or director sign-offs can certify the absence of these within an organisation.
Recent economic history bears this out. In the aftermath of the Enron and WorldCom scandals, the US authorities introduced the Sarbanes Oxley Act (2002). It significantly increased the regulation of financial reporting and corporate governance in US-listed companies. An estimated $200 billion (€156 billion) has been spent on compliance since its introduction. Less than a decade later, this system has been brought to the brink of collapse by greed, corruption and the abuse of power. The only thing worse than having no insurance is thinking you have insurance.
Regulation and policing alone offer insufficient protection against system failure. The final layer of protection is a set of shared values that sets clear boundaries between acceptable and unacceptable behaviour.
For far too long we have tolerated corruption and cronyism in all walks of Irish life. We have a defective gene in our national DNA and the painful truth is that we have all given tacit permission for the behaviour at the heart of our banking crisis.
It starts with our historic propensity to use “informal” channels to sort out issues such as traffic offences or planning permissions. Our love of the rogue gets louder expression in some of our poll-topping choices.
“Boxing” things off is a national pastime, as is using influence rather than merit to further our own cause. Unfortunately, we are waking up to the reality that the international bond market is one entity that cannot be “boxed” off. Our destructive gene has mutated into potential economic meltdown.
The sustainable solution lies in a renewed value system. This will not require an extensive search, as we need only turn the dial back 40 years to our mothers’ generation.
Those women are the real heroes in our recent history. Their values of family, community, self-sacrifice and education secured a better future for us. We now have to do likewise for our children.
We can draw sustenance for the journey ahead by looking back to the idealism of the first republicans in 1919 or even further back to the Irish monks who served as a beacon of light when Europe was plunged into darkness. The extraordinary strength in the Irish DNA has been proven beyond reasonable doubt by the global success of our diaspora.
Lasting organisations or societies are built on a combination of top-down leadership and bottom-up values and norms. We have seen these twin forces working in concert to make drink-driving culturally unacceptable in Irish society. Increased policing played its part, but a groundswell change in our attitude to it was even more effective.
The journey of renewal cannot start without the self-honesty to admit failures. Many of the players in this unfolding drama do not seem to appreciate the social damage they have inflicted on Irish society. When trust breaks down, it takes an extraordinary set of responses to rebuild it. Policymakers in Ireland would do well to examine closely the recent example of Siemens, Europe’s largest engineering company.
In 2007, Siemens was found to have engaged in systematic bribery and corruption across the globe. It pleaded guilty during a wide-ranging investigation by the US Securities and Exchange Commission and paid fines and reparation totalling $1.6 billion. Siemens, led by a new chief executive, Peter Loscher, has gained praise for its response to the scandal. The commission commented: “Siemens’ co-operation has been exceptional. It has faced facts, accepted responsibility and introduced real reforms.”
It will take years for Siemens to restore its reputation, but the recovery process has been accelerated by a willingness to live up to its responsibilities. We need significant acts of reparation from the six banks, which we now underwrite to the tune of €400 billion. These banks have severed their connection with the public and their public utterances show little sign they understand the depth of the anger.
Accepting responsibility for the debt they have placed on our future would start the recovery. A reparation package should include a level of debt forgiveness for the most acute victims of irresponsible lending, an acceptable remuneration cap for senior executives and other targeted contributions to the economic recovery process.
Another uncomfortable truth is that acts of reparation are also required for our European partners. Our rejection of the Lisbon Treaty was the crowning act of hubris in the Celtic Tiger era. We should apologise to the EU who subsidised our agriculture system, built our roads and whose markets were the catalyst for extraordinary levels of foreign direct investment into Ireland.
There is another silver lining. A globalised economy is inexorably placing a higher premium on knowledge. Ireland’s greatest asset remains our young educated population brimful of ideas, creativity and confidence. The sociability gene in our national DNA is uniquely suited to the sharing and building of knowledge.
Gatherings of Irish people literally fizz with opinions, debate and humour. We have the potential to win in the changing order of the global economy.
Again, success demands a combination of top-down leadership and engagement from the bottom up. Knowledge in the workplace is harnessed when power is devolved from the centre and distributed throughout the organisation. Excellence from knowledge workers is a largely voluntary act and a fundamentally different approach to leadership is required.
Volunteers need a stage for their talents rather than diktats. This idea requires a separate piece but our pain can be the catalyst for the fundamental change in mindsets needed to realise it.
There is a pathway out of this crisis and two words delineate that journey. Values and knowledge. Welcome to the land of saints and scholars – 21st century style. Let the message go out. We’ll be back.
Donal Casey is an actuary and a former chief executive of corporate business in Irish Life
Permanent. Next Friday, Donal Casey will outline the workplace changes he argues are necessary to enable Ireland to compete and win in the global knowledge economy