The good name of the financial sector has become an oxymoron. Now that the credit crunch has trashed its reputation, what does the new reality look like for the sector? And how can companies regain public trust and reverse negative perceptions? Neil Gibbons reports

An engineer, a chemist and a banker stop at a small inn for the night. “I have only two rooms,” says the innkeeper, “so one of you will have to sleep in the barn.” The engineer volunteers, and the others go to bed in the hotel. Soon the engineer knocks on the hotel door, saying that there isa cow in the barn and as a Hindu he can’t sleep there. “No problem,” says the chemist, and moves to the barn. But soon the chemist knocks on the hotel door, saying that there is a pig in the barn and as a Jew he can’t sleep there. “No problem,” says the banker, and moves to the barn while the others sleep in the hotel. Soon there is another knock on the hotel door. The innkeeper opens the door, and sees a very upset-looking cow and pig.

Estate agents and lawyers are breathing a sigh of relief. In the last 18 month, talk-show hosts, newspaper columnists and bloggers have turned their barbs on the financial sector, saddling it with that unwanted mantle: the butt of the joke. Reputations have crumbled and trust has all but evaporated. And that’s not just bad for morale; it’s bad for business.

The sector itself acknowledges as much. In a survey of the industry by City law firm Eversheds, almost four in five respondents said that the credit crunch has had a “very damaging” impact on reputation and trust. More than half (55%) believed it would take more than two years to recover the trust of businesses and the public.

Other measurements bear that out. In the tenth edition of its annual Trust Barometer, financial PR firm Edelman found trust in banks had fallen sharply among UK opinion formers aged 35 to 64, slumping 16 points on the previous year to 31%.

“Clearly the banking sector – from blue chip investment bank to high street retail outlet – has taken the biggest hit to its reputation,” says Paul Lockstone, Edelman’s managing director. “They have come to represent all that is bad about the financial services industry: unwilling to support business, indifferent to the needs of their personal customers and oblivious to their societal responsibilities.”

Indifferent and oblivious? It might sound harsh but Lockstone believes “the banks have been slow to grasp the new reality” and he even provides a salutary example. “When Edelman launched its 2009 Trust Barometer at the end of January, we were very keen to have a banker on our panel of experts,” he says “Yet we were rejected by pretty much every bank in town. We thought this was an opportunity for someone in the industry to acknowledge public concern and begin the process of response but the banks were unwilling to participate.” (Fortunately, Lockstone adds, Joe Garner, HSBC’s group general manager of Personal Financial Services and Direct Businesses, stepped in.)

Even at the annual conference of the British Banking Association, big names were notable by their absence. There was no senior figure from Lloyds. Large investment banks such as Goldman Sachs and Morgan Stanley were also no-shows.

What’s clear, however, is that this is far more than a banking problem; the fallout is being felt across the financial services sector. Mark Knight, a director at Broadgate, points to a breakfast seminar his firm hosted in Edinburgh this April on how asset managers can rebuild investors’ trust.

John Moore, divisional director for Brewin Dolphin Investment Management, was on the panel at the event. Today, he argues that some in his industry invite resentment by adopting clever fee structures and practices that overly favour the institution or manager. “Falling values often lead to greater scrutiny and exposure of these practises which soon breeds contempt,” he says. “This will spread across the sector.”

That already seems to be happening – and not always fairly, some say. “An irate public, goaded by politicians and some parts of the media, has branded the whole industry guilty until proven innocent,” says Joanna Trezise of Headland Consultancy. “So, even financial services companies that haven’t been unscrupulous have to contend with a cynical public.”

Take the hedge fund industry, for example. “It was initially seen by the popular press to have been complicit in the banking meltdown,” says Lockstone. “In the event there is no evidence to underpin this. But the industry has been poor at engaging with external stakeholders. This has allowed prejudice to become accepted fact, with the result that the industry now finds itself short of friends when they are most needed.”

Pamela Blamey, PR director of Living Group, agrees that just about everyone in the sector has been affected, although banks and hedge funds tend to grab the biggest headlines: “Funds face mistrust after Madoff and Stanford; banks from shareholders and each other;  intermediaries for unscrupulous advice; regulators for failing to spot or stop the crisis, and the hedge funds for making money from betting on it.” All told, she says, the public now perceive the financial sector to be “wantonly irresponsible, untrustworthy, the very essence of corporate evil”.

So people are holding a grudge and saying mean things? Boo-hoo. What does it all mean in practice? How much does it really affect business?

Profoundly, says Lockstone. “The collapse of trust in the sector has effectively caused some of its constituents to lose control of their license to operate – particularly the high street banks that took advantage of the UK Government bail out,” he says.

And Blamey cites a host of tangible repercussions: “Tumbling share prices; redemptions, a radically risk-averse investment landscape, dire market sentiment; and stricter regulatory control that will hobble the more ‘creative’ players in the market. The long-term effects are subtler but also more  insidious.”

“Nature abhors a vacuum. In the absence of any engagement from the industry or individual firms, our new breed of citizen consumers will draw their own conclusions”

Lesley McLeod, executive director of communications at the British Banking Association, suggests that the “drip-drip impact” of negative coverage manifests itself in non-financial ways too: “from difficulty in recruiting and retaining good staff to jokes in satirical programmes; from downsizing and relocation to being able to get a seat on commuter trains.”

When public perception is stopping you from getting a seat on the 7.50 to Liverpool Street, you know you’ve reached a low.

“Nature abhors a vacuum,” says Lockstone. “In the absence of any engagement from the industry or individual firms, our new breed of citizen consumers will draw their own conclusions.”

Yet commentators agree that vacuum has formed. “Acting like an ostrich and as though customers need the company more than the other way round is a common mistake companies fall into,” says Knight. And that’s perverse, says Joanna Trezise: “In the face of criticism regarding their secrecy and deception, many companies are battening down the hatches and refusing to engage with the very stakeholders
with whom they need to rebuild trust. Some need to demonstrate that they have learnt lessons and are taking action to put right the damage they have done to customers.”

But, more profoundly, financial institutions need to shake themselves from their stupor. “There is an awful lot of denial in the sector about how much the world has changed and how this will affect business and how companies must communicate,” says Pamela Blamey, “even, or perhaps especially, if the particular business in question has nothing to hide.”

Fortunately though, righting negative perception is a fight that certain banks are tackling with gusto, most notably HSBC. Its chairman Stephen Green doubles as chairman of the British Banking Association and has drawn praise for appearing to genuinely understand public sentiment. He even published a new book this year about the moral hazards of serving Mammon. At the BBA conference, the Guardian noted that he was “without a jacket, and wearing a far-from-posh shirt. [He appears] to be ‘one of us’.”

Green spoke earnestly about the importance of rebuilding trust, singling out three components: relationships, because the outcomes affect human beings and require human beings to deal with each other; confidence, which enables people to risk entering into relationships; and values, because they are essential to making those relationships constructive and sustainable.

On a practical level, there are certain easy wins. “Transparency may have become a bit of a buzzword but there’s a good reason for that,” says Blamey. “The only way to win back trust is to own up to any mistakes in a dignified, well-managed way; comment credibly about what is being done to address them; and quickly and effectively correct any misperceptions that may have occurred.”

That doesn’t mean bleating contrite sentiments to anyone who’ll listen. Ensuring that communications channels are two-way is essential, says Knight. “Companies need to show that they are prepared to listen as well communicate with their customers,” he says.

Make no mistake: communication is going to be crucial to the fight-back. Research commissioned by KPMG International and launched in June at Fund Forum International in Monaco points to the need for transparency and greater disclosure. The investment management report ‘Renewing the promise: Time to mend relationships in investment management’ contends that the investment management industry hould adopt a ‘back-to-basics’ client relationship approach, combining improved communication and education, increased knowledge sharing, and a bolstering of corporate governance and risk management transparency – words that could apply to companies across the financial sector.

Lockstone argues that companies must act rapidly. “The response of communications departments will be central to how quickly, and how fully, they recover,” he says. He calls on them to “recognise the role of the internet and social media and adapt communications strategies to address these channels effectively”.

They should also “embrace the changing nature of communications and take advantage of the collapse in traditional communications hierarchies and the rise of the citizen journalist.”

Of course, there’s a danger of being all mouth and no trousers. “There’s no point trying to create an image of respectability if it isn’t based upon concrete actions decided at the business level,” says Headland’s Trezise. “Companies need to ensure stakeholders know and understand what they’re planning to do to put things right, and then update them with progress reports on the implementation of those proposals.”

That’s certainly the view of the BBA. “The best thing banks can do to regain public trust is to do the job of managing customers’ finances well,” says Lesley McLeod. “It’s not a flash solution but, over time, the competent management of money is both what banks are for and how they will restore their reputations. The message must be built on solid substance –addressing systemic problems and ensuring banks are on a sound footing for the future. Without firm foundations, any message will ultimately collapse.”

An example of that action, says Lockstone, can already be seen. “There has been a significant shift in the mindset towards board composition and, in particular, the role of the non-executive director,” he says. “These can no longer be seen as sinecures, or a case of jobs for the boys. The NED role is now pivotal to the governance and management of our financial services businesses.”

Behavioural change needs to spill out of the boardroom and cascade down to those at the frontline. To that end, Knight advises: “Galvanise your staff behind the changes needed and inspire them with the idea of working for the leading player who is famous for client service. You will only deliver a step-change in performance if your staff are behind you.”

The key battleground, then, seems to be at the interface between company and stakeholder. And it’s here that they must work hardest to restore trust. “The organisations that emerge strongest from the economic downturn will be those that are most able to reach out to, and empathise with, the man or woman in the street,” says Lockstone. “But I think the biggest lesson that needs to be learned is that life, as we have always known it for the financial services sector has changed forever. So far as the media is concerned, every pound the banks spend comes out of ‘our’ pockets – the normal rules of business no longer apply. “There has to be an attitudinal shift among financial services companies. The next 12 months are going to present major challenges to communicators in the sector but this is not the time to adopt a bunker mentality. Stakeholders will be asking searching questions. The industry has to engage with its observers and even its detractors – it can no longer pretend that it is above all this.”

The ING way
ING Wholesale Banking, an arm of the global financial services group, has set about rebuilding trust with a scientific rigour. So how is it done?

“To answer that, we need to know what trust in a financial is based on,” says Andy Muncer, global head of communications at the bank. “Once we know the various aspects of trust, how important each aspect is, and what we should do to improve on this aspect, then we start winning back trust.”

The bank has been working with international marketing strategy agency VODW. Its research found that 40% of current trust in a bank is defined by the daily provision of services. Financial stability determines another 30% while drivers that relate to the softer and more emotional elements (empathy and ethics) each determine only 15% of trust.

ING’s retail banking division in the Netherlands took the discussion to its customers. Board members and senior managers put themselves in front of every day customers and let them question them about the crisis, its impact on ING and what advice they could give to manage their way through the crisis.

Muncer adds that reputations of financial companies are increasingly governed by social media. “When the Dow ones Industry Average for financials companies dips, one can clearly see the discussions in social media spike,” he says. “This is clearly an area where financials still have to build new competences. What are the dynamics of these places? What can we do to make sure that we are being talked about with integrity? What can we definitely not do?”