On behalf of the IBOA, I thank members of the committee for the opportunity to outline the concerns that IBOA — The Finance Union would have in the light of the recent disclosures in AIB. As Members will be aware, IBOA — The Finance Union represents more than 20,000 staff in Irish banking from clerical to middle management level. While I circulated the submission, I would like to focus on the key areas rather than go through it. I am very conscious of the time constraints of the committee and the issues on which it focused earlier today.
It is important for the committee to join us in recognising the importance of the banking industry in Ireland today. The general thrust of our approach to the overview of banking is that Irish banking contributes enormously to the Irish economy and contributes 4.6% of gross national product. As earlier speakers mentioned, it is a major provider of good employment in Ireland. It should also be noted that Irish banks are extremely profitable. Our submission indicates a number of criteria such as profit per employee and cost income ratio, which show Irish banking as being probably the most profitable in Europe. From our point of view, Irish banking today is in a very strong financial position, has made record profits, provides thousands of jobs and contributes billions to the Irish economy. We argue that we all have a responsibility to build on that to make sure it is in premier place not in Europe but in the world.
We then try to focus on the recent developments in the past two decades in Irish banking. We try to put the recent disclosures in Irish banking in some sort of context, not just in regard to AIB but in terms of what has actually happened to banking as a whole over the last two decades.
The first point we have emphasised very clearly is that we have seen a number of very serious financial scandals. This is not just about overcharging. It must be viewed against the background of the ICI debacle, the significant inquiries into DIRT, the Ansbacher issue, the CMI issue in National Irish Bank, and recent revelations in regard to Rusnak, Faldor and overcharging in AIB. As a representative body, we have a greater responsibility not just to focus on one issue or one bank but to look fundamentally at what has happened to this industry over two decades and try to learn from those lessons and rectify the situation in everybody's interests.
We have also tried to bring the committee up to date on what, in terms of its members' own day to day interactions with their constituents, has happened to Irish banking. We have seen a very clear downgrading in terms of levels of employment and status of jobs and the introduction of performance related pay, with a very heavy emphasis on profit, sometimes at the expense of the staff and customers. There has been a huge exodus of experienced staff from the industry through voluntary severance or early retirement. We have also seen significant damage in terms of opportunities for staff to speak their minds and focus on and address problems.
When we look at banking today in that context, we are also looking at what has happened in regard to the closure of branches and the move away from what I would call community banking. All of these are facets that focus very clearly on the culture in banking today. Our contention, which we have put very strenuously, publicly and to each of the banks, is that all of these factors have had an adverse impact on the high standing and international reputation of Irish banking. We genuinely believe that if this is allowed to continue, it will have serious repercussions not just for jobs, which we are interested in, but also for the industry and the standing of the economy. Our thrust, I hope, is a balanced and focused one.
For the committee's benefit, we have tried to focus on the fact that there have been many studies on Irish banking over recent years. They have failed to address what we would contend is an underlying problem in our industry — the prevailing culture within it. This was picked up on in some of the comments and statements earlier. It is our contention that the principal cause for the deterioration in confidence in Irish banking and subsequent problems is a direct result of the prevailing culture which has led to a decline in ethics within banking. This has resulted in a dominant culture emanating from the top down approach of putting profit before everything else. Profit comes before service and the customer. In many cases it compromises ethics and higher standards and certainly comes before the welfare of staff.
It is important to emphasise that the IBOA is not against profit. Indeed we are very much in favour of a profitable industry, and at looking at enhancing profitability, because we want our members to share in that profitability and have good, secure jobs. However, this should not be at the expense of ethics and certainly not at the expense of people, customers or staff.
Our fundamental thrust, in terms of the question of culture, is that the changes we have seen over the last number of years have been gradual but have created a culture in banking which is alien to what I would call the traditional view of Irish banking. It is a culture driven by the short-term goal of maximising profits above everything else. It goes against the finest traditions and highest standards and practices that have given Irish banking a very solid reputation.
I then focus part of our submission on ethics. It is clear, particularly from the disclosures about Faldor in AIB, that there was a serious breach of the highest ethical standards. I am conscious obviously that investigations are on-going, but based on what we know to date that is a serious breach. The IBOA would argue that everybody in the industry needs to return to the high standards, ethos and practices that characterised good Irish banking and gave it a solid foundation. That is where we want to come to.
The recent revelations in AIB, focusing initially on the overcharging practices, have brought many of our concerns to the fore. From an IBOA perspective, these revelations are extremely disappointing as we have a good professional working relationship with AIB and have successfully negotiated a partnership agreement with AIB which is beneficial to our members, customers and the bank. We launched this in 2000 and believe it provides principles that can allow for good governance, good consumer focus and good focus on ethics and standards. This is why, in many respects, the recent revelations have been particularly difficult for AIB staff to take, and it has shaken our members' confidence in their own bank, to which they are tremendously loyal.
One of the unique features of bank officials is that there is a tremendous loyalty to their institution but also to their customers. In many respects, that loyalty even compromises us as a union because sometimes people are asked to make choices between loyalties to their organisation or their union, as against their bank and their customers. What has emerged has been hugely damaging for staff.
That said, we have had a number of meetings with the CEO, Mr. Michael Buckley, and a commitment from the chairman that, in regard to these disclosures, there is a need to be committed to working with us, in line with our principles, to put in place structures and systems, and not just to gloss over these issues but to talk about fundamental change in the culture of AIB to ensure that these issues are not repeated.
Our members work at the coalface of banking and are on the receiving end of the justifiable anger, frustration and annoyance of customers over these revelations. It is particularly galling for the thousands of staff who have built up excellent professional and personal relationships with customers only to find that their customers were being overcharged for years. That is very difficult to take if one has worked within an industry and built up loyalty among customers. Staff have felt embarrassed and let down by senior management over these revelations, and this has now turned in many respects into widespread anger. Questions are being asked as to why it has happened, what has actually happened, where the accountability is and how the issues can be resolved for the future.
It is equally important to note that allegations of tax evasion and offshore accounts of senior executives have infuriated staff even more. It impinges on the cornerstone of integrity, which is the bedrock of every bank official dealing with the public on a daily basis. Questions are being asked among many staff as to whether there is one rule for the ordinary employee and another rule for senior management.
Although these revelations have been embarrassing and hurtful, we believe that the various investigations and hearings currently under way are a welcome development and should be regarded by the industry, regulatory bodies, the Legislature and ourselves and staff as a unique opportunity to address the core underlying causes of the malaise within Irish banking — the issue of culture. We welcome the in-depth investigations under way. It is important that when those investigations have been concluded, a commitment to date by senior management in AIB to meet with us is fulfilled in order to put in place the changes that are necessary in the culture for the people, the organisation and the standards. Those changes need to be implemented with the IBOA as the representative body.
What we have also tried to do for the committee is give some view on what we believe is the way forward. It is easy to be critical sometimes and to be damning in terms of organisations. We see our responsibility as recognising where the problems are and working towards putting in place a structure that involves fundamental changes. Management must take responsibility and be accountable for their actions. We also need to learn from the lessons and bring in meaningful change in the banking industry.
We put to the committee a template for change that we believe will be widespread in terms of its application and will assist bank officials in providing a better culture, with the co-operation of senior management. The first initiative concerns bank boards. It is important to note that staff and customers, two of the most significant stakeholders in the banking industry, are at present excluded from the main decision making bodies of the banks. We believe the time has come for bank boards to include staff representatives and customer representatives. We would argue that if this was the case historically, the practices and disclosures now causing such difficulty and controversy would probably not have occurred. I am not naive and do not believe that putting representatives on boards will change the world, but we are of the view it requires far heavier emphasis in terms of boards of management.
The second aspect we have talked about is the need for a whistleblowers' charter. This should be introduced to protect vigilant employees who in the public interest need to bring to the attention of the relevant authorities matters and activities that are against the common good, that are at variance with good practice and that may be at variance with good ethics. It is important that such a charter is not allowed become a crank's charter. It must be balanced, constructive and ensure that genuine concerns are raised, but at the same time discourage misleading or frivolous claims. Putting such a charter in place would be a difficult task. There is a fear culture in Irish banking. Bank officials are caught by the commitment and loyalty to their organisation and there is a strong fear of talking about and highlighting problems.
The third initiative we have talked about has to do with a number of climatic changes in the industry to address the culture of fear. Sadly bank officials are fearful about speaking out. There is a fear culture among staff throughout banking. Staff are genuinely frightened of speaking out openly on virtually any issue because there is a perception that they will be viewed as disloyal to the bank and that their career progression will be hindered. We believe it would be healthy and helpful for the banks to actively encourage staff to speak their minds in a meaningful and constructive manner, but it must be safe to do so. Internal criticism should not be feared or seen as a threat by the banks, rather it should be regarded as a positive development illustrating concern and loyalty for the organisation by staff. The committee should acknowledge that recently, a number of banks, in conjunction with IBOA, have begun to undertaken employee surveys, and, in the case of one bank, road shows, to allow staff an opportunity of speaking out. This is a welcome development which we would like to encourage across the industry. However, there continues to be big problems in this area.
All the human resource policies need to be reviewed. In recent years HR polices and practices have become totally subservient to the business needs of banking. As outlined earlier, the emphasis and obsession with selling ever more products to make even more profits, creates a pressurised and stressful environment for bank workers. As a trade union, the IBOA has had to deal with a twentyfold increase in stress related problems in the last five years alone. Indeed, in our submission to the Strategic Review on Banking, we pointed out, "There are staff shortages in many bank branches and this is having an impact on staff through stress." If anything, the situation has dramatically worsened since then. We realise a central part of any bank's business is to sell products, but it needs to be balanced.
A key matter is the need to review performance related pay, PRP. PRP, in recent years, has become the favoured method of remuneration for bank employees at all levels. While rewarding employees who achieve or exceed particular targets is standard practice across the private sector, it is particularly prevalent in the financial services industry. We have serious misgivings, borne out by international experiences and awareness of Barings and Rusnak scandals, that where PRP becomes the principle form of reward, it leads to a culture of greed which compromises standards and good ethics. It also undermines the humanity of banking, which is a core issue from our perspective. If the banks will continue to pursue a system of remuneration based principally on PRP, the IBOA believes we will witness more damaging disclosures and financial scandals.
There is a need for a radical refocus on ethics within banking and a need to look at the issue of regulation. In the presentation the IBOA strongly advocates the need to look at a partnership approach in Irish banking. The Oireachtas does very important work and the executive committee of Congress, of which I am a member, is doing equally important work trying to conclude a national pay deal at this time, but it is important to bear in mind that the banks have been reluctant to embrace partnership, which has been the root of the success of the economy in the past, as part of their modus operandi for the future.
There is a need for a forum on banking. This should not be a retrospective look at the problems, but should be future focused. It should learn from experience and from the reports and investigations. It should be an all-embracing forum, including the regulator, the legislator, the various consumer interest bodies and the IBOA, putting forward in a constructive fashion the issues of a profitable banking industry and addressing the need for deal with profit in a structured way.
Irish banking is profitable and benefits our economy and society. However, there is a serious problem with the prevailing culture within Irish banking. Staff and customers have been shocked by recent revelations and their confidence has been dented. There is a need for a co-ordinated approach involving all the stakeholders in the industry and the IBOA believes a forum on banking is the best way to move forward constructively.
