Technology is replacing school ties in companies’ battle to keep their employees honest

The activities of the House of Lords are very much in the news at the moment.  But the members do carry out serious work, not least on the economic affairs committee.  Last week, Lord Green, former chairman and chief executive of HSBC, appeared before them.  Yes, the noble Lord admitted, the bank had not got everything right. “There were things we should have done differently with the benefit of hindsight”, he told the committee.

This sort of apology has become routine from those who led banks in the run up to the financial crisis.  What was certainly not routine was Lord Green’s view on how the board could obtain reliable information about what was really going on inside the bank.  He was nostalgic for what he called the ‘old’ HSBC before the takeover of the Midland in 1992.  Then, he said, “you could rely on the people on the spot because you knew them, and had probably been to school with them”.   Rather disappointingly, at a time when the Prime Minister likes to surround himself with old school chums, Lord Green himself only went to Lancing rather than to Eton.

But his rather throwaway remark does raise an issue of fundamental importance for all large organisations like HSBC.  Just how does the board find out whether managers are cutting corners in order to meet profit targets?  Indeed, are the profits which are being reported fair and true?  The directors of Barings were certainly duped by Nick Leeson and lost their bank as a result.

Lord Green longed for the days when he had been to school with key people reporting to the board.  That is certainly one approach to obtaining sound information.  Stalin adopted a similar method in order to know what was actually being produced in the Five Year plans of the old Soviet Union.  He believed Nikolai Voznesensky to be completely reliable and promoted him to run the entire Soviet economy when still in his thirties.  Voznesensky did indeed provide years of loyal service, though his first slip up was his last.  He was shot in 1950.

Boards can’t liquidate employees who distort the information which flows up to them.  Yet even this measure, which an economist might regard as providing the ultimate incentive to behave properly, does not seem to have worked.  So much depends upon the internal culture of an organisation, as the long and interesting discussion between Lord Green and the members of the economic committee makes clear.

Recent innovations using modern computer science might help.  For example, the emotional content of internal emails and communications can be extracted using advance textual analysis.  Potentially risky attitudes might be detected, even though the reported numbers tell a different story.  Perhaps even more powerfully, by the use of network theory, the patterns themselves can reveal anomalies, regardless of the content of the messages.   The Enron internal email traffic has been dissected in a number of academic papers, and the problems were certainly identifiable in advance.  At heart, however, it is the culture, the human factor which matters, and it is here where many banks have yet to clean up their acts.

Paul Ormerod

As published in City AM on Wednesday 29th July 2015

Image: “Bank Vaults under Hotels in Toronto, Ontario” by Jason Baker licensed under CC BY 2.0

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Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.


Senior Partner

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Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.