Protect your rep

I wouldn’t want to be a Barclays advisor.

Even before the LIBOR scandal, the embattled bank was accused of money laundering, tax avoidance and conflicts of interest. Barclays’ wealth management arm is scandal-free, but the company name is sullied nonetheless.

Which raises the question: What if your firm messes up big, but you don’t?

One advisor shared his experience.

A newspaper unfairly slagged someone who used to work for his firm. He considered e-mailing clients the real story, but held off after concluding most people probably never saw the original report. It was one of those cases where offering an explanation would’ve done more harm than good.

To the handful of clients who did call with concerns, he reiterated his investment process and firm’s compliance controls.

Interestingly, that same advisor banks with HSBC, which stands accused of laundering money for Mexican drug cartels. Those allegations haven’t affected his decision to bank there, because he’s confident in his local branch’s staff.

Lesson: if the scandal’s relatively contained, or isn’t making headlines, leave it alone and let your good work speak for itself.

But if it’s reaching LIBOR proportions, or directly affects clients, call them as soon as possible.

“Duck and cover isn’t the best response,” says Michael Davis, partner and managing director with Reputations, an image-management firm in Vancouver. It’s better if they hear the story from you, and with context.

When you call, acknowledge the problem, explain you didn’t cause it, and detail the steps you’ve taken to ensure client money is safe.

At the same time, advisors shouldn’t have to cover for their firms. So why is it that people at firms like Barclays, JPMorgan and HSBC have made such colossal errors in judgment?

“Incentive cultures at some financial institutions have been caustic,” says Matt Orsagh, director of capital markets policy for the CFA Institute.

Executives are often bonused for reaching short-term targets, and this can lead them to make tactical calls that temporarily raise stock prices but later work to companies’ detriments.

This would change if executive compensation was better tied to long-term growth that aligns with company strategy, he notes.

Other governance experts suggest placing bonuses in escrows that don’t pay until five-to-ten years after executives retire; and only pay out if the company’s still doing well.

Another approach is to compensate executives not only with stock but also corporate bonds, which don’t fluctuate alongside market prices, to ensure leaders take the long view.

When it comes to corporate misdeeds, damage control is just reactive. A shift in incentive structures will directly impact a company’s culture.

You manage client money as carefully as you do your own.

So it’s your right to expect the same of your corporate peers.

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.