UBS Scandals Show the Value of Strong Values – and the Cost of Cracks in the Culture

Just as we thought that we’d seen the worst that could happen to UBS, the bank gets hit by a $1.5 billion fine for fiddling with Libor, a global benchmark for interest rates. Libor governs interest rates that determine everything from the cost of your mortgage, over the profitability of your pension fund, to the monthly loan repayments made by your company.

Let’s just do the math. It will, I believe, lead us to the real damage.

Almost the entire fine agreed with authorities in the US, the UK and Switzerland goes to the US, $1.4 billion. The Swiss watchdog puts at $64 million – the amount it fined UBS – the profit made by UBS in just one year of tampering with Libor.

Thus, widespread corrupt behavior in pursuit of $64 million profit cost UBS $1.5 billion in money terms, and I would claim much, much more in reputational damage.

Did the authorities overreact? Not really. The UK Financial Services Authority says UBS bankers asked their own colleagues, independent brokers and employees at other banks on 1,900 occasions for Libor to be fixed for their gains. And those are only the written requests.

In this crisis, I am struck by how UBS has boldly kept its public brand promise (the corporate slogan “We Will Not Rest”) throughout a long period of turmoil. Let’s look at major trouble moments at UBS, and what happened as a result.

UBS was born in 1997 in a merger of two Swiss banks, in a world where banking secrecy still gave Swiss financial institutions a real advantage.

UBS ticked along until 2008, when its investment banking unit announced a $50 billion loss on US sub-prime mortgages. UBS was bailed out by the Swiss government, to the tune of $59.2 billion. “Too big to fail” was the reason given.

In 2009, UBS had to pay 780 million dollars to settle criminal fraud charges that it helped rich Americans to evade taxes. US-Swiss relations soured. Washington launched an attack on Swiss banking secrecy and have now more or less cracked it. Berne has signed a pact with the US government to provide information on Swiss accounts held by US banking clients. Similar deals will be done soon with the EU. Goodbye banking secrecy.

In 2011,  UBS unveiled a $2.3 billion rogue trading loss. CEO Oswald Gruebel resigns and is replaced by Sergio Emotti. Last month, the trader received a seven-year prison term for fraud.

And now Libor fixing.

What does this tell CCOs? What should the new CCO of UBS worry about as he takes up his position in the new year. My two cents:

1. If you rebrand your company, make sure you get to a branding proposition you can deliver on. Branding is the promise. Reputation is the result of delivering – or not – on that promise. Companies deliver through their performance, their behavior and their communications. Realistic, achievable stretch is a good thing for a brand proposition. Unrealistic stretch is like handing out hammers to people so they can hit you in the head.
   
2. Nothing matters more than lived values. Behavior is values in action. If there is any gap between lived organizational behavior and espoused values, pull the emergency cord and go on the attack internally. Think about this: banks, unlike industrial companies with local manufacturing, a footprint and a need to understand many stakeholders, often behave as if there are no legacy issues to worry about. As a management breed, bankers are like hunting dogs. If they fall into a ditch while in hot pursuit, they’ll just get up, shake themselves dry and continue. How they lost their way is seldom of little institutional interest. Therefore, in banks, behaviors have to be tightly regulated internally – and as we now see also externally.
   
3. Culture cracks can cause the greatest edifices to crumble. If you’re a banking CCO, helping the enterprise to link brand, values, behaviors, strategic ambitions, good stakeholder approaches and a compelling narrative into a living positive culture would be the ultimate goal. It is not easy in any sector, but my view is that the financial world is so deeply cynical that even with a hands-on culture drive firmly led by the CEO, you will find it really hard to mould a culture that is fit for today’s world.

So, how can UBS build trust and embark on a positive reputation journey?

I guess it must once more do a proper mea culpa, not just mumble about “unacceptable behavior”. UBS must then focus on its compliance systems. It must rediscover what it means to put customers first – and not allow bonus hunting to drive behaviors. It must change its culture.

Through communications, the bank can set achievable trust recovery milestones, be open about the trust gaps it faces and record openly every steps in the right direction – and where things still go wrong. The story telling must be both compelling and transparent.

UBS should somehow strive to get to a place where truly stakeholder-oriented companies are. The best description of a stakeholder-oriented company’s world view that I know came from Neville Isdell when he led The Coca-Cola Company. In 2009, in a speech to the Council on Foreign Relations, Isdell said: “I believe that we need to redesign our businesses so they embody what I like to call 'Connected Capitalism' – a new model of how businesses must engage with society across four platforms – communities, institutions, social challenges and values.”

Striving for that model, step by step, year after year, would do UBS a world of good. One thing is sure: If you’re this low, things can usually only get better.

By Bjorn Edlund
Chairman Europe, Middle East and Africa, Edelman
Retd EVP Communications, Royal Dutch Shell plc