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Survey: A Growing Ethics Problem On Wall Street And In Banks

Labaton Sucharow logo Last Tuesday, the law firm of Labaton Sucharow announced survey results about ethics, executive misconduct, and the role of regulators in the financial services and banking industry. The survey, part of the "Wall Street In Crisis: A Financial Storm Looming" (Adobe PDF) report, concluded:

"A particularly troubling and consistent finding from our survey is what the future holds for Wall Street. Many of the young professionals who will one day assume control of the trillions of dollars that the industry manages have lost their moral compass, accepted corporate wrongdoing as a necessary evil and fear reporting misconduct. This is a ticking economic timebomb that responsible organizations must immediately defuse."

Some detailed results from the survey:

"Despite the many reforms put in place in the wake of the financial crisis, only 36% of respondents felt that Wall Street has changed for the better since Dodd-Frank’s passage in 2010. More than half of respondents–52%–felt it was likely that their competitors have engaged in unethical or illegal activity to gain an edge in the market; 24% felt employees at their own company likely have engaged in misconduct to get ahead. Misconduct is still widespread... 23% of respondents indicated that they had observed or had firsthand knowledge of wrongdoing... 26% believed the compensation plans or bonus structures in place at their companies incentivize employees to compromise ethical standards or violate the law... 28% of respondents felt that the financial services industry does not put the interests of clients first."

According to the survey, younger professionals were more likely to know about, accept and participate in illegal or unethical behavior than older workers:

"... 24% of financial services professionals likely would engage in insider trading to make $10 million... if they wouldn't get arrested. That figure surges to 38% for individuals with 10 years or less in the industry."

Perhaps most importantly, bad executives don't act alone or unseen:

"... there are always witnesses. Indeed, 23%–more than one in five professionals–have personally observed or have first-hand knowledge of wrongdoing in the workplace. The data suggests that the longer you work in the financial services sector, the more you’ll see: 29% of professionals with more than 20 years’ experience have observed or have firsthand knowledge of misconduct, a full 9 percentage points higher than those with 10 years or less in the field."

Regarding regulators, the survey found (links added):

"... 62% of financial services professionals felt the SEC is an effective watchdog and 57% felt that FINRA is effective. Despite the encouraging 89% of financial services professionals who indicated a willingness to report wrongdoing given the protections and incentives such as those offered by the SEC Whistleblower Program, 40% of respondents were still unaware of the SEC’s Whistleblower Program."

Despite the whistle-blower protections, Wall Street workers fear retaliation (emphasis added in bold):

"Given the pressure to perform and a concerning lack of faith in leaders to address criminal activity... 24% of respondents felt their employers would likely retaliate if they were to report wrongdoing in the workplace. This astonishing figure is a full 9 percentage points higher than our 2012 survey... 36% of female respondents believing that they would be retaliated against... compared to 17% of male respondents... 32% of professionals with 10 years or less experience would fear retaliation, which represents a 21 percentage point increase over those with more than 20 years’ experience..."

So, things are getting worse, not better.

The survey, conducted June 18 to 27, 2013, was part of the "Wall Street In Crisis: A Financial Storm Looming" (Adobe PDF) report. Labaton Sucharow commissioned ORC International to conduct the survey, which included 250 respondents ages 18 years or older who work in the financial services industry as traders, portfolio managers, investment bankers, hedge fund professionals, financial analysts, investment advisors, asset managers, and stock brokers.

This is the second survey by Labaton Sucharow, which often represents SEC whistle blowers. Read about the firm's 2012 survey.


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Chanson de Roland

This is a disturbing and depressing survey to read, yet it corresponds with what a young lawyer, who had worked at the SEC, told me years ago about Wall Street, when I asked him about his experience at the SEC. He said that Wall Street was "a den of iniquity."

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