Remarks by Angel Gurría,
7 June 2016
(As prepared for delivery)
Ambassadors, Ladies and Gentlemen,
I am delighted to welcome you for a performance of Note Etiche. Thank you Ambassador Checchia for this original initiative. It will be wonderful to hear live music and policy debate intertwine! Especially around such a key, topical issue as business integrity and ethics in the financial sector. We could not ask for a better, more pleasant prelude for tomorrow’s Global Forum on Responsible Business Conduct.
The role of the financial sector remains fraught with questions
The Forum comes at a crucial time, when the trust of citizens in business and the financial sector remains severely dented. The financial crisis has raised deep and uncomfortable questions about the financial sector in particular: can it fulfil its rightful role as an intermediary, or does it only serve itself? A quick look at this sector reveals persistent risks and regulatory challenges.
Financial institutions in the OECD are now on average providing three times more private-sector credit relative to GDP than 50 years ago. This kind of expansion brings risks, such as when excess credit goes to households with poor financial education or consumer protection, making our economies vulnerable to crises. It’s also a problem when excessive exposure to derivatives raises the level of leverage and the fragility of financial institutions. These risks are all too familiar.
Behind the growth of the financial sector lies the fees of intermediaries, which have risen to unprecedented levels. The share of the earnings of the S&P 500 that went to the financial sector was around 6% in 1980 but had risen to over 30% before the financial crisis. And today, almost eight years after the crisis started, this share has climbed back to over 25%. This tells us that much of the innovation and financial skills deployed to develop the financial sector in pursuit of fees and bonuses did not make our economies stronger, safer, or more inclusive. On the contrary, this innovation has geared up our balance sheets, created huge volatility, and unleashed a crisis whose consequences were primarily born by taxpayers, in turn contributing to rising inequality.
Unsurprisingly, in many instances governments have taken punitive action. Fines for misconduct have been levied across the financial sector since the crisis, amounting to €163 billion between 2010 and 2014. Fines have reached such high amounts that prudential regulators have argued that they potentially create systemic risks of their own. What we need is reform that harnesses the dynamism of financial innovation, while building bridges to support the real economy.
A transparent and accountable financial sector: the OECD’s contribution
This is our focus at the OECD. We are working with the Financial Stability Board to improve firms’ governance to address misconduct risk, and are conducting a peer review of national frameworks in the financial sector.
We are working closely with tax authorities, the Financial Action Task Force and enforcement agencies to promote transparency and exchange of information. OECD work on Automatic Exchange of Information will enable the tracking of financial flows that were previously unknown and unknowable, and has already yielded more than 50 billion euros of tax revenue through “voluntary disclosure programmes”.
We are developing due diligence guidance for the financial sector, in line with the OECD Guidelines for Multinational Enterprises. These Guidelines, which turn 40 this year, were the first international corporate responsibility instrument to incorporate risk-based due diligence into major areas of business responsibility, including human rights, environmental and labour issues and anti-corruption.
There is no one-size-fits-all solution. Our work shows that firms committed to effective action are supporting their ambitions with a well-defined internal structure of responsibilities, accountability and reporting. The main building blocks of such a framework are laid down in the G20/OECD Principles of Corporate Governance, which foresee a key role for the board of directors. To use an appropriate analogy, it’s a role very similar to that of the conductor of an orchestra. With strong, clear, and coherent leadership, the whole ensemble can deliver harmoniously.
The OECD’s Trust in Business Project (TNB) complements these legal and policy instruments by understanding where and why implementation gaps persist. Working directly with governments, businesses and civil society, the TNB Project promotes discussion about the effective integration of business integrity considerations into companies’ decision-making.
Ladies and Gentlemen,
Plato said that “Music is a moral law. It gives a soul to the universe, wings to the mind, flight to the imagination, a charm to sadness, and life to everything. It is the essence of order, and leads to all that is good, just and beautiful, of which it is the invisible, but nevertheless dazzling, passionate, and eternal form.”
What better medium could we find in which to think about the better, fairer future we all aspire to? I have no doubt it will inspire us this evening, and at tomorrow’s Global Forum on Responsible Business Conduct. Thank you!