Credit goes to Credit Suisse today for giving us our latest example of real, practical challenges in corporate culture and conduct.
Credit Suisse is one of our frequent fliers on this blog. I last wrote about the bank in March, when CEO Tidjame Thiam announced more layoffs and asset write-downs after discovered that employees had been lying about true levels of risk in the bank’s holdings. Now Credit Suisse is in the news for awarding huge retention bonuses even as the bank limps along, thanks to the rotten culture that allowed those under-performing employees to make (and hide) bad investments in the first place.
An article in the Financial Times has the details, which are enough to exasperate any executive who worries about corporate culture. Credit Suisse tripled its “special bonus payments” last year to $228 million—money the bank uses to pay new employees who are leaving behind deferred compensation at their old employer, or money to retain key existing employees as Thiam leads it through a painful restructuring program. Thiam himself received a special retention bonus of $14.6 million, to make him whole for shares he abandoned when he left Prudential to take over as CEO at Credit Suisse last summer.
Since Thiam arrived, Credit Suisse has announced layoffs of 6,000 people. It has also written down its holdings by nearly $1 billion, and its share price has fallen 60 percent. So as you can imagine, news that the bank is now showering a select number of employees with more money has caused some complaint.
Unfortunately, compliance and risk managers can’t dismiss Credit Suisse’s move so easily. As awful as those bonus payments are for nurturing a strong corporate culture, they still fit quite well into a company’s competing interest of nurturing high performance.
That’s the tension in risk, compliance, and compensation that nobody knows how to solve.
Want evidence? Consider two principles from COSO’s proposed new enterprise risk management framework, both of them meant to support the component of Risk Governance and Culture.
Principle 3: Defines desired organizational behaviors. “Establishing a culture that is embraced by all personnel—one in which people do the right thing at the right time—is critical … to achieve the strategy and business objectives. It is up to the board of directors and management to define desired behaviors of the entity as a whole and of individuals within it.”
Principle 6: Attracts, develops, and retains talented individuals. “The organization is committed to building human capital in alignment with the strategy and business objectives.”
The crucial phrases in Principle 3 are “all personnel” and “entity as a whole.” Ethics & compliance officers get that. You know that for employees to feel comfortable—and eager, even—to speak up about possible misconduct, then all employees must feel a basic, uniform sense of fairness. If senior leaders (including you, the compliance officer) want to talk about corporate values and say, “this is what we all believe,” then you need to make good on the implied second half of that sentiment: “and we are all in this together.”
Retention bonuses contradict that idea absolutely. We are not all in this together: some employees are more valuable than others, so they get bonuses to stay while others get pink slips. That’s the ethical message Credit Suisse just sent, and it pummels the sense of fairness that’s so crucial if you want employees to embrace your ethics & compliance messages.
Then again, Principle 6 makes perfect sense to HR and business operations leaders. They need talented employees if the company is going to succeed, and talented employees can be difficult to find. So paying them well is just common sense.
The core problem here is that Credit Suisse is creating privilege: some employees don’t need to worry about job loss, while most do. The word comes from the Latin privus and legis, “private law”—and that should set off alarms all over the ethics & compliance department. Once privilege arrives in your culture, it breeds cynicism and disengagement from exactly the people compliance officers want to win over most.
Even worse in this case, the CEO leading the program that will result in job cuts is one of the people receiving a special bonus. It isn’t a retention bonus per se, but it’s more money going to the top while those at the bottom get anxiety. Good luck asking employees to make sacrifices in that circumstance—when, really, asking employees to make sacrifices is a big part of the ethics & compliance officer’s job.
Now, I am no fool. I appreciate the reality that skilled employees have a lot of power in this economy. I understand that if the company ceases offering retention bonuses in the name of preserving a unified culture, it risks violating a duty to shareholders to hire the best possible employees. But you must admit that compensation policies like what Credit Suisse is doing pose huge obstacles to what ethics & compliance officers want to achieve.
And nobody has told me yet how to solve that problem.