Values and Mortgage Banking

Recently, Greg Smith, a former Goldman Sachs executive, wrote in a NY Times Op-Ed article that he was leaving the firm because it had changed values from looking out for the customer to making as much money as possible by whatever means necessary. According to Smith, Goldman views clients as “muppets” and does not really value its customers.

Smith also said that Goldman traders compete with each other to see how much profit they can make at the expense of the client, even if it means selling products that are sure to blow up on them. After publication of Smith’s article, many financial firms rushed to Goldman’s defense saying that their clients were “big boys” who could take care of themselves. Even some of Goldman’s clients agreed that the securities firm was not responsible for their decisions because both sides of any transaction has its share of financial professionals.

But, the discussion has not stopped. The American public is still mad as hell about how Goldman and other financial firms have conducted business with their customers — even three years after the financial crisis happened.

It seems clear to me that operating in today’s financial marketplace is dramatically different than in the past. While Goldman has not been found guilty of any security violations, the court of public opinion has rendered its decision that a higher level of conduct is expected from financial firms.

There is an important lesson to be learned in mortgage banking from what is happening to Goldman. While this time it was an employee who raised the veil on a premier financial firm and shown it to be repugnant, the next time it could be someone else. The solution for Goldman is it needs to fix it fast. Just ask Enron executives how long something like this can fester. The “it” that needs to be fixed starts at the top — it is all about leadership and culture. What does the company stand for?

Integrity and trust are values that must start at the top of a company. When there is a lack of it, invariably the reason lies at the senior management level. In my view, these are not mere slogans or taglines on email signatures. There is too much access to technology that can shed the light on poor practices quickly.

In my consulting practice, I often hear executives describe a sales performance problem when in reality, the problem lies with a lack of shared company values. If the company is only focused on the financial, when more difficult times occur there will be nothing to hold the group together. Similar to the sports world, long-term success in financial services does not happen by chance but is a function of doing the right things each day — not some days but every day. Mortgage origination is held to a high level of trust by customers today and not just by Dodd-Frank. Is your company ready to deliver on integrity and trust in the new normal world of mortgage banking?

In Forbes’ just released annual article on American’s Most Trustworthy Companies, the most interesting finding is that well-governed companies have higher long-term return for shareholders. Having a trustworthy company makes smart business sense. (To view the article, click here.)