Society, shareholders and self-interest: Accountabilityof business leaders in financial services is an Economist Intelligence Unit report, sponsored by SAS. It explores perceptions of accountability among C-level executives, primarily in the banking and insurance industries. In particular, the report examines the degree to which business leaders in financial services feel accountable to society compared with other stakeholders. Finally, it evaluates the impact stakeholders have on decision-making, especially when it comes to risk management.

Since the outbreak of the financial crisis in 2007 governments, regulators and investors, as well as ordinary tax payers and consumers, have been calling for greater accountability in financial services. By making senior executives in the sector more accountable for their actions, so the argument goes, society can minimise the risk of disaster striking again.

Clearly, accountability means different things to different organisations and individuals. The social responsibility of financial institutions—or the lack of it—has come under intense scrutiny in the aftermath of the crisis. To what extent do finance leaders feel they should be accountable to shareholders, regulators and wider society? Are their views on accountability changing as a result of the financial crisis? How do perceptions vary between regions? And do they vary between different segments of the sector?

Drawing on a global survey of C-level executives, this Economist Intelligence Unit report provides several noteworthy insights into attitudes towards accountability at the very top of the financial services industry.

Key findings include the following:

• Finance leaders attach the greatest importance to meeting short-term performance targets; being “socially responsible” is a much lower priority. On a scale of one to five, where one is the highest priority and five is the lowest, 84% of C-level finance leaders rank “meeting short-term performance targets” as either a one or a two. This is closely followed by “ensuring the long-term sustainability of the organisation” (83%). The need to be a “socially responsible corporate citizen” (62%) is a much lower priority.
• C-level executives think they are most accountable to their boards, regulators and investors, and that is the way they think it should stay. Top executives in finance think that the C-suite is most accountable to the board (90%), followed by regulators (79%) and investors (74%). Only 54% see themselves as being accountable to “society at large”. When asked who or what they should become more accountable to, the most popular choices are CEOs (48%), investors (44%), the board (36%) and regulators (32%). The least popular choices are society at large (25%), the company’s workforce (24%) and the government or state (11%).
• Top managers in finance do not think their remuneration is excessive, and public criticism is having little impact on pay policies. The financial crisis has triggered widespread public resentment over levels of pay for business leaders in finance, but nearly two-thirds (65%) of senior finance executives surveyed believe they are simply paid what they are worth in the market. Also, only a minority of them (29%) think that factors such as a tarnished public image or investor criticism have a greater influence today on C-level remuneration packages than a few years ago.
• Investment banking is becoming more sensitive to public perception, but its C-level still does not see accountability to society as a top priority. Much of the criticism of investment bankers and their role in the financial crisis appears to have struck a chord. Over one half (53%) of respondents from investment banking agree that factors such as public opinion have a greater influence on risk appetite today (versus a finance sector average of only 36%). Similarly, 54% think that public perception is having a greater impact on performance-related pay today than a few years ago (as opposed to a sector average of just 32%). However, compared with their peers in other parts of finance, senior investment bankers assign a much lower priority to external stakeholders. According to the survey, only 34% see themselves as highly accountable to society at large, compared with nearly 70% of retail and 67% of commercial bankers who do.
• Corporate social responsibility weighs much less on finance leaders in North America than on their peers in other parts of the world. Survey respondents were asked to indicate the extent to which they agree or disagree with the statement: “Businesses should concentrate on making money and leave the pursuit of wider societal objectives to governments, regulators and others.” In North America, 63% agree and only 8% disagree. In the Asia-Pacific region, 53% of respondents agree and 32% disagree. And in Europe, 45% are in agreement versus 38% who are not. Meanwhile, three-quarters of North American respondents also believe that “public and political criticism of executive remuneration is generally unfair”, a far higher percentage than executives in Asia-Pacific (51%) and Europe (48%) who think the same.
• Attitudes towards accountability and risk management vary markedly between finance CEOs and CFOs. CEOs and their CFOs in financial services disagree on what constitutes accountability. Only 16% of CEOs think business leaders should be more accountable to society at large, but more than twice as many CFOs (33%) think they should be. Similarly, when asked what kind of impact public opinion is having on the “willingness of C-level executives to take responsibility for failure or misdemeanors”, 55% of CEOs say that it is having less of an impact than a few years ago, but only 15% of CFOs agree. Four in five CEOs also believe they have taken adequate measures to improve risk management at their firms. But only 65% of CFOs agree.