In your book „Tod eines Investmentbankers“ [Death of an Investmentbanker] you describe and analyse the life and work of former Deutsche Bank CEO Edson Mitchell and you highlight his influence on his successors. How did Mitchell manage to shape the entire banking sector?
Edson Mitchell was the first American Board Member of Deutsche Bank to have identified and seized the opportunity to conceptualize a new investment banking operation from scratch for his employer. In addition to his talents he gained previous work experience within leading US financial institutions. He used this first mover advantage to turn the Deutsche Bank into a leading European investment bank.
You refer to investment bankers as „conquistadors of the modern era“. What do you mean by that?
Initially I intended to call the book „The new Conquistadors“, but my publisher did not share my enthusiasm, pointing out that ordinary readers would not know what a “conquistador” is. I doubted this and replied that: If this is really the case then an ordinary reader would also be oblivious to the new title’s parallelism with Arthur Miller’s “Death of a Salesman” . I conceded to the new title in the end, but I still think that “conquistador” is a fitting job description for investment bankers considering the developments in the financial industry in the 1990s and 2000s. The Conquistador in 16th Century Latin America was not a missionary or a government agent. He ran his military operation like a private business at his own expense. He took the greatest risk and he made a fortune when he succeeded. And that is exactly what Mitchell and his teams did in 1995/96. Using the term “conquistador” does not necessarily mean to cast judgement, but instead tries to describe what these people did –acting well beyond the realm of any government regulation.
The Public tends to have a negative conception of investment banking. Why do you think this is the case? How would you characterize the typical investment banker?
Well, for one thing, conquistadors are not social workers. Some of them are ruthless, some of them cheat – like in most other professions. The difference is that the impact of the actions of investment bankers is far greater. In 2008/09 we witnessed how a small number of these new conquistadors was able to destabilize the global financial system. The resulting consequences did nothing to help increase the popularity of the banking industry. At the same time I would also stress that most bankers like most other people work hard, produce decent and important results and respect the rule of law. The key issue is that the “black sheep” in investment banking were able to bankrupt the shepherds.
Would you argue that there is a certain type of person that becomes an investment banker?
That sounds a little too generalized for me. However, an investment banker is good at managing risk and uncertainty in much the same way that a lawyer is good at debating or a teacher is able to educate children. So yes, investment banking attracts a certain kind of person – like many other professions tend to do as well.
In light of speculating with someone else’s money, which criteria does an investment banker take into consideration when he “uses” the money? How can these criteria be evaluated from an ethical point of view.
In terms of ethics, the key question is what he or she (in investment banking mainly “he”) actually does and what he or she should do. What he should do is to put his customer’s interest first, to avoid any insider trading and other manipulations and to pay taxes. From what we have seen so far, investment bankers rarely act so responsibly.
The collapse of Lehman Brothers in 2008 was a critical incident for investors. How has the financial crisis changed the investment-banking sector? Are stakeholders acting more carefully now?
Again, I would disagree with the underlying assumption of the question: What you consider to be a “critical incident for investors” turned out to be a fatal blow to millions of homeowners and national economies developing to the point that heads of state had to provide insurances for their citenzens on prime-time TV. Anyone who had the experience “to look into an abyss”, as the German Finance Minister Peer Steinbrück coined it, should have felt the duty to ensure that such a situation could never repeat itself. However, I am not so certain that it will not happen again and I also suspect that the lessons of 2008/09 will fail to be lasting.
Would you argue for stronger government restriction for banks in order to protect investors from high risk investments made to maximize banker’s profit?
I would argue that the key objective is to regain the right balance. Banking operations, particularly risky ones, need to be supervised more closely than in Edson Mitchell’s time. At the same time one must also consider that banks make their money by managing risks. The key problem seems to be that the pendulum swings from one extreme to the other, i.e. from virtually no regulation to a state of over-regulation. If you disagree with this, then I suggest you to try to get a bank loan and to count the number of signatures you will have to sign under rather meaningless protocols. On average, the number will certainly be more than ten. At the same time I think that regulation of the shadow banking sector is anything but sufficient. The key is to find the right balance in regulation.
To what extent does ethical conduct constitute a legitimate criterion for the quality evaluation of an investment bank? Or can quality only be measured in economic performance?
I would argue that lawregulation deals with legality and that ethics deals with legitimacy. Considering the current banking scandals we would already make a big leap forward if banks were to obey the law.
Is the idea of a „good bank“ a utopia in today’s financial industry?
A teacher of mine said to those questions “good, bad, happy, sad”. A good bank is a bank, which serves its clients and through this service it also serves the national economies wherever it operates. It is important for a country like Switzerland or Germany to have global banks operating domestically as well as globally. If banks obey the rules and do their job well, they are “good banks”.
Even if ethical conduct were to be made an important value for investment banks, how could this be enforced for individual bankers?
Immanuel Kant’s defining ethical question was “What shall I do”. It was not “What can we do?” or “What should or would we do?” nor was it “What should the state or the institutions do?” He did not formulate his question in this way by accident. Banks like UBS or Goldman Sachs are neither “good” nor “evil”. Only individual human beings are capable of being moral or immoral. Of course, these people are the same people that are part of such institutions and act in their name, but at the end of the day, everyone needs to justify their actions to themselves. And even if he or she is not willing to take that personal responsibility, the law will help him or her to do so, whether one chooses to lie, cheat or steal – for oneself or in the name of an institution. Fortunately, most individuals and institutions respect the law.
Is it possible to measure ethical conduct quantitatively?
There are many possible ways to measure ethical conduct and they are being implemented more frequently. Business Ethics is however not a special subject within Controlling, it is not an exact science, it is much rather a part of Ethics. Ethics poses open ended question, for example “What shall I do?” (Kant) or “What constitutes a good life?” (Aristotle).