When the chairman of the ethical Co-operative Bank was recently caught on camera purchasing drugs, it became a major news story. But the links between drug-taking and Wall Street or the City of London have been a truism for years. In 2005, Dr Alden Cass, a Wall Street therapist, was quoted by the Financial Times saying there is a thriving white-collar black market for the prescription drug Ritalin, which is not very different from cocaine. As regards London, Dr Neil Brenner, medical director of the Priory Group, was quoted saying that the main City drugs are cocaine, alcohol, amphetamines and marijuana.
There have been many other stories in the media of drug arrests among finance workers over the years. I also know from personal experience that in the City of London, for many years, pubs have been heaving every weekday evening; alcohol is a routine part of City life. In spite of this evidence of addiction, the banking professions both in the UK and the US have done nothing to deal with it. The huge pressures for change and reform are met with a conspiracy of silence.
So the story of drugs in finance is not new. But what is new is the focus on the ethics and culture of people who work in large and influential financial institutions, and this scrutiny has increased radically since the 2008 Global Financial Crash.
I recently attended a conference on this theme at the London School of Economics, which was packed by senior people from the City and regulators. An excellent study on risk management and culture in the City of London by Michael Power, Simon Ashby and Tommaso Palermo was launched at this event. The findings of this research raised a number of critical questions about the engagement of leaders and executives in the process of culture change and the active monitoring of risk appetite, behaviour and performance.
At the conference, I asked a very simple question as I was suspicious about the genuine commitment to culture change: when will drug testing be introduced to the City? I got only one response from a panellist who said that there was no real drug problem and so no need for testing. I found this very surprising indeed, and the cynic in me decided that this was evidence of a lack of genuine commitment to culture change in the City. The highly critical Salz review of the culture and governance of Barclays also did not say anything about monitoring addiction.
We know from the various investigations into the crash that there were serious problems with risk management and control inside various financial institutions. The risk takers often had much more power and influence than the controllers or compliance officers. In my own research, I have been examining this “political conflict” in detail. Could it be that the risk takers were addicted to their work, and took risks simply for the “high”? Is it also possible that the long hours and stress of working in the City drive people to various addictive substances in search of a coping strategy?
We know from research and experience that gambling is an addiction. High finance is a form of gambling; the eminent political economist Susan Strange called it “Casino Capitalism” way back in the mid-1980s. Financial institutions provide a legitimate and legal platform for high-stakes gambling, funded by huge amounts of debt provided through the banking sector. This was a principal cause of the huge disaster we experienced in the global crash of 2008. Professor Prem Sikka has written very important articles here on the implications of the Crash, and the profound weaknesses of the reforms that are being undertaken.
In sport, drug testing is a routine technique) for routing out cheating; similarly, alcohol testing in driving is very common and those who are caught are severely punished. Addiction testing is reliable and well-tested. Even psychometric testing is routinely used during recruitment to weed out certain character traits; there is no obvious reason why it should not be applied to monitor staff behaviour, especially when staff hold positions of power and influence.
Given the huge wave of new reforms and regulations in the City, a large majority of which are structural, why can we not apply this simple tried-and-tested technology to root out the problem of addiction? Many people, Warren Buffett among them, have called derivatives “weapons of mass destruction” –- in the wrong hands, they have caused widespread damage to society. I therefore find it surprising that we are not using simple tried-and-tested safety technologies to ensure that we do not repeat the mistakes of 2008 and subsidise the bad behaviour of bankers.
Some voices have protested that the political power and influence of big financial institutions is such that they are “too big to jail”, campaigning for justice against these institutions that seem to be above criminal accountability. It is true that very few people have been prosecuted despite the huge crises and scandals that unfolded after 2008. Some have even argued that the UK is suffering under a Finance Curse, with the Finance industry destroying our economy, our society and our morality. Could it also be that these influential people are themselves taking drugs or suffering from addictions, and therefore highly resistant to such testing? Alternatively, is it possible that Bank management want to protect their ‘high-yielding risk taking’ assets and are happy to turn a blind eye to addiction? Without addiction-testing in the finance industry, it is impossible to know.
Even in the area of banking ethics and values, despite huge criticism from the public, Bankers have not invited an open dialogue and conference with their investors and customers to debate their conduct and behaviour. They have simply avoided this, and used spin to try and show that they are now different from what they used to be. Most of the punishments in areas like LIBOR manipulation, PPI mis-selling, Sub-prime Mortgage frauds – have been made in the form of fines payable by the institutions. Barclays is the only institution that has been open to root and branch reform and culture change.
There is an urgency to engage in people-change initiatives, and addiction-testing in Banking is critical to rooting out irrational risk taking. It is high time that we apply simple, practical and scientific solutions to stop widespread drug use and addiction in the City. If the Banks do not agree to this, the Financial Conduct Authority must impose it and enforce it. We have suffered far too much in subsidising this industry, and to protect ourselves from its excesses, we need to police its behaviour to the fullest extent possible. If in a year’s time this action is not taken, it will show us the real colours of the Financial Conduct Authority and its commitment to culture change.