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Scott Flowers read with interest a line in this space two months ago. In “The values proposition” we wrote, “It would make a good graduate thesis to attempt to quantify the financial impact of good values to an organization.” Twenty-two years ago, Flowers wrote his thesis for the Pacific Coast Banking School on “The link between ethics and financial performance.”

Flowers was then with U.S. National Bank of Oregon. He’s now EVP and chief banking officer at First United Bank and Trust, Durant, Okla. In an email he wrote, “My thesis…is indeed the very ‘attempt’ you refer to. Granted this thesis is 22 years old but the good thing about ethics is they don’t really season all that much.”

How true that is. People’s opinions about ethics may change, but principles of right conduct don’t. If you remove a few references to outdated bank names, Flowers’ thesis could have been written now.

In the 63-page paper he talks about the negative impact of unethical behavior and the positive impact of the opposite. On the negative side, referring to some of the insider trading scandals of the time, he points to the hefty legal expenses of litigation, and the potential for actual damages. These in turn drain resources from more productive work. Additional government intervention and regulation is another negative he mentions.

Flowers also noted several positive results from ethical conduct. One was attracting and retaining good employees.

The paper sought to demonstrate the correlation between ethics and financial performance. It cited several studies that supported a “specific link between ethical behavior and significant improvements in financial performance.” Interestingly, Flowers was unable to find similar statistical evidence that unethical acts are detrimental to a firm in the short run.

Perhaps that is one reason unethical behavior persists. Often it does result in gains. But they don’t last and they bring high costs in their wake, as was brought home in spades recently.

One conclusion Flowers drew 22 years ago was prescient: “Anyone who thinks banks are viewed as distinct instead of viewed as a group is mistaken. Poor ethical performance by one bank hurts all banks and results in a scar on the entire industry.”

We asked Flowers, “How can the majority of bankers who didn’t engage in the recent excesses and unethical behavior help prevent another Dodd-Frank?”

After a pause, he said: “Do the best you can with what you can control.”

That answer may not strike some as up to the task. But actually it is extraordinarily powerful. If a trader, for example, were doing “the best he can,” he would try to control any temptation to manipulate LIBOR. The head of the trading desk, while not able to control every trader’s actions, can set the tone—by example and policy—of what is right, as well as establish controls.

It’s a simple principle, and a challenging one to live by, but ultimately it is far more rewarding than taking the low road.

Topics: Management,

Bill Streeter

Bill Streeter has been a full-time business journalist for 40 years, 34 of them with ABA Banking Journal. During his time with the magazine, he rose from Assistant Managing Editor to Editor-in-Chief. He has guided the magazine’s editorial direction since 1985 and has been an observer of momentous changes in banking, from the introduction of ATMs to the 2008 financial crisis and passage of the Dodd-Frank Act. In 2012 Streeter became Editor & Publisher, responsible for the Banking Group overall including the magazine, ababj.com, and related e-newsletters.

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