Training | 2009.02.11
Jackie Ashley: To chop City bonuses, start by cutting the testosterone
There\'s no such thing as a safe prediction, particularly these days. But let me try. We know that this week in the Commons, a dock-full of pink-faced bankers will be grilled by a horseshoe-shaped committee of MPs. There will be a lot of angry, assertive, male grandstanding on both sides. There will be no sudden revelation about what mistakes were made.
Don\'t get me wrong. I find the blame culture as much fun as anyone. If bankers are going into the stocks, put me down for a rotten cabbage and a bag of squishy tomatoes. But there is something about the self-righteousness of one group of powerful men, who failed to predict or stop the disaster in the financial system, denouncing another lot of men, which leaves me feeling a little amused and sceptical. It\'s a ritual moment, not a change in the culture.
So how might the culture change? Alistair Darling yesterday made the point that we need a different style of banking - more cautious, deliberate - all right, more boring. He can\'t bring himself simply to order banks to stop paying bonuses because there are, it seems, contractual and other legal issues, but he went a long way to demand restraint and penitence. He sounded genuinely angry and a little menacing.
George Osborne, for the Tories, was if anything even stronger: "The party is over for the banks. You can\'t just pay yourself 20 times more than a heart surgeon. The whole culture has to come to an end." Not the kind of thing he or any other Tory - or Labour - ministers would have dreamed they would be saying a few months ago.
Yet everyone knows that politicians themselves can\'t manage the banks. They can\'t go in and start setting salaries, picking clients, deciding which business is a safe risk and which is not. The change in the culture they want has to happen inside the financial system itself. So how might that happen?
In one way, it will happen naturally. The biggest risk-takers, the most testosterone-fuelled and aggressive players, are generally the ones who have been most humiliated already. Many are already out, and others are leaving, hanging on for that final unmerited bonus before they try to work out what to do with the rest of their lives.
But other politicians point to something else that needs to change. Step forward Hazel Blears, the communities secretary. She said yesterday: "Maybe if we had some more women in the boardrooms we may not have seen as much risk-taking behaviour." She follows Harriet Harman, who has called for an investigation into the 40% pay gap in the City between men and women. How many women were up for mega-bonuses?
This is a debate that has ignited well beyond Britain, in other countries hit by the market meltdown. Above all, in Iceland, where its prime minister, Johanna Sigurdardottir, is to appoint a cabinet composed half of women, and where the two main disgraced banks are now run by women. The swaggering male "Vikings" who ran so much of the Icelandic system are cowering.
In the past, whenever it has been suggested that the culture of the City, and high finance generally, is too aggressive and competitively male, it has drawn down a torrent of foaming sexist ridicule and abuse, not least from the blogosphere. But if we are really having a serious rethink about the one-way-bet, coarsely competitive system that has brought us to this terrible pass, maybe gender should be on the table too.
We know how closely connected gender is to behaviour. There have been endless studies of male group behaviour, and the effect of women in the workplace. The most interesting research takes on a special relevance just now. It was conducted by a former Deutsche Bank trader Dr John Coates, and a neuroscientist, Professor Joe Herbert, both from the University of Cambridge. They measured levels of testosterone and cortisol, associated with stress, in 17 male traders at a London bank. Traders with the highest morning testosterone levels were likely to do best in the day\'s trading. That success pumped their levels higher, so they behaved more aggressively and did better still. No great surprise there, but it highlights how markets are driven by chemical emotion, rather than cold reason.
However, a secondary effect showed that "a previous win in the markets leads to increased, and eventually, irrational, risk-taking in the next round of trading."
And here\'s the killer. When things go wrong, cortisol kicks in and the trader\'s confidence crashes. According to this research: "You tend to see danger everywhere ... People get paralysed by the fear. [It] takes over so they are no longer thinking rationally. They are no longer doing the things that they should be doing to make money." These chemical swings are responsible for crashes, as well as for booms.
So why should such issues be brushed to one side in the big world of finance? These days we take brain chemistry, and group dynamics, very seriously so long as we\'re talking about relationships, mental illness, sport, education or general wellbeing. We talk about the influence of women in parenting, in politics and in schools. So why stop short at business and the City?
I\'m not saying that a simple-minded, "sack the men and appoint women" solution would work. You need people with experience, and for that matter I\'ve known some pretty aggressive and ruthless, indeed risk-taking women in my time. But if a culture needs to change, we need to think about how it is composed.
A new culture means, presumably, a new working atmosphere and different ways of thinking. Nobody actually needs £20m bonuses. These are symbols of hierarchy and dominance, like big ruffs or peacock feathers. The scramble for dominance has helped cause the bubble and bust: we need a business atmosphere that is more balanced and calm.
How to do that? A true nostalgic would say: let\'s go back to the world of elderly local bankers who know their customers. A more modern approach would be to widen the pool of people in financial services to include more women, and to pay them fairly, without ludicrous bonuses, in an atmosphere more like the rest of the working world.
That isn\'t a wild, radical, feminist manifesto but a modest suggestion. If we want long-termism, and more caution in banking, then we need serious rethinking. I\'m sure the tag-wrestling between MPs and bankers at Westminster next week will be a good spectacle. But it\'s a little beside the point.
For more information, please visit
http://www.guardian.co.uk/commentisfree/[...]ecutive-salaries-jackie-ashley
