Chicago,
IL Acting Comptroller of the Currency Julie L. Williams said today there may
be no more elusive, difficult to manage, and feared risk than reputation risk
for large banking organizations. Her
remarks underscored the importance of effective structural governance and
checks and balances, and stressed that the most vital component of an
organizations defense against reputation risk is ensuring that the
organization is grounded in a sound corporate culture and value system.
In a
way, the prominence of reputation risk as a concern also is a product of large
banks successes in managing other types of risks, Ms. Williams said in a
speech before the Conference on Bank Structure and Competition hosted by the
Federal Reserve Bank of Chicago. These
successes make ethical and compliance embarrassments even more conspicuous and
damaging to an organizations franchise.
Ms.
Williams noted while the OCC cant regulate corporate ethics, the agency will
notice and comment on whether a banking organization has a corporate
organizational framework, and policies or practices that supportor
underminesound corporate values and an ethical climate within an
organization. In addition, OCC
supervision experience has demonstrated that if such values and the ethos of
the organization are not strong, institutional soundness and a banks good name
and reputation can suffer in unpredictable ways.
Ms.
Williams stressed that the OCC doesnt look at reputation risk in isolation,
and will look to see whether a bank has an environment for sound
decision-making that includes effective structural governance and a system of
checks and balances to identify, monitor and control the risks to which the
organization is subject. This
evaluation will include whether the organizations incentives recognize and
reward the corporate values and culture that the company wants to promote.
All
these functionsbusiness line risk management, enterprise risk management,
compliance management, and internal and external audit, supported by effective
internal information flow and communicationare vital components of a banking
organizations defensive line against reputation risk, Ms. Williams
said. But that defensive line of
corporate functions will be fundamentally incomplete if the organization is not
grounded in a sound corporate culture and value system understood by all its
employees.
Ms.
Williams said that compensation must be keyed to the interests of the
companyto its safety and soundness, broadly definedrather than to its
short-term profitability or growth. If
conflicts arise, its crucial for senior management to resolve those conflicts
in a way that sends an unequivocal message about its ethical and reputation
priorities.
Ms.
Williams stressed that nothing could be more vital to the ethical climate of an
organization than the example set by its leadersthe tone at the top. While the OCC generally would not dictate a
particular result here, except, of course where an individuals conduct
violates a law or rule or misuses bank resources, the agency will note if the
behavior of senior management is not supportive of the articulated goals and
values of the organization.
We
not only look to senior managers to set the right tone; its also their job to
enforce it, Ms. Williams said.
Accountability is key. Ethical
companies not only reward ethical behavior; they penalize misbehavior.
Ms.
Williams concluded by noting that as organizations get larger, the potential
increases for mistakes and misjudgments because of competitive pressures,
particularly if employees are pressured or incented to pursue profits at any
costs. Structural governance and checks
and balances are vital to sound governance and important protections against
reputation risks.
But,
the ultimate protection for banking organizations, and for the people
responsible for running them, is to instill in all employees a dedication to
high standards of fairness and ethical dealing; to make clear throughout every
corner of the organization, that no deal, no sale, no loan, no customer, and no
profit opportunity, is worth compromising the banks name, integrity, and
reputation, Ms. Williams said.
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The
Office of the Comptroller of the Currency was created by Congress to charter
national banks, to oversee a nationwide system of banking institutions, and to
assure that national banks are safe and sound, competitive and profitable, and
capable of serving in the best possible manner the banking needs of their
customers.