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• Case | HBS Case Collection | July 2016 (Revised January 2017)

  Banking on Change: Aligning Culture and Compensation at Morgan Stanley

  Malcolm S. Salter

  This case study was prepared as part of a research project on Culture, Conduct, and Governance in Financial Firms. The objective of this project is to compare and contrast the efforts of U.S. and European banks to induce changes in organization culture in the aftermath of the 2008 financial crisis. Since this crisis, wide ranging regulations aimed at improving risk management and bankers’ ethics have been promulgated in the United States and in Europe, and more rules are currently under discussion. Academics, regulators, and public officials have proposed many of these measures. At the same time, banks have been implementing their own company-tailored culture change programs. This project and the Morgan Stanley case in particular describe these change programs and banks’ experience with them so far—with particular attention being paid to how banks are using compensation and other incentives to change and reinforce organization culture and conduct. One of the central questions of this case is whether or not the voluntary efforts of Morgan Stanley to strengthen their conduct and culture will prove to be “effective” or “adequate” according to bank regulators and the general public. This case lends itself to analysis and discussion in a variety of related graduate-level courses dealing with the management of financial institutions, financial regulation, corporate governance, organization behavior, and corporate accountability and ethics.

  Keywords: Business or Company Management; Corporate Accountability; Ethics; Organizational Culture; Corporate Governance; Banks and Banking; United States; Europe;

  Citation:

  Salter, Malcolm S. "Banking on Change: Aligning Culture and Compensation at Morgan Stanley." Harvard Business School Case 917-402, July 2016. (Revised January 2017.)  View Details

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• Working Paper | HBS Working Paper Series | 2014

  Crony Capitalism, American Style: What Are We Talking About Here?

  Malcolm S. Salter

  This paper seeks to reduce the ambiguity surrounding our understanding of what crony capitalism is, what it is not, what costs crony capitalism leaves in its wake, and how we might contain it.

  Keywords: democracy; industrial governance; institutional corruption; crony capitalism; lobbying; campaign finance; costs; cronyism; Business ethics; campaign finance reform; revolving door; Economic Systems; Ethics; Political Elections; Financing and Loans; United States;

  Citation:

  Salter, Malcolm S. "Crony Capitalism, American Style: What Are We Talking About Here?" Harvard Business School Working Paper, No. 15-025, October 2014.  View Details

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• Working Paper | HBS Working Paper Series | 2012

  How Short-Termism Invites Corruption—And What to Do About It

  Malcolm S. Salter

  Researchers and business leaders have long decried short-termism: the excessive focus of executives of publicly traded companies-along with fund managers and other investors-on short-term results. The central concern is that short-termism discourages long-term investments, threatening the performance of both individual firms and the U.S. economy.

  I argue that short-termism also invites institutional corruption. I define that as institutionally supported behavior that-while not necessarily unlawful-undermines a company's legitimate processes and core values, weakening its capacity to achieve espoused goals and eroding public trust. In the private sector, institutional corruption typically entails gaming society's laws and regulations, tolerating conflicts of interest, persistently violating accepted norms of fairness, and pursuing various forms of cronyism.

  The gaming of Securities and Exchange Commission rules by Citigroup's mortgage-banking desk in 2007 is an illuminating example of institutional corruption in the finance industry. After exploring that case, I provide a more complete definition of gaming, and explain how short-termism invites the kind of gaming and institutional corruption that occurred at Citigroup. I then examine the key drivers of short-termism in contemporary business, and their potential effects on the behavior of both executives and their organizations.

  I conclude by proposing mechanisms to deter the corrupting effects of short-termism, including changes in both business and public policy. While business leaders and policymakers have been cautious in implementing many of these countermeasures, we must seriously consider them if want to rein in the public and private costs of institutional corruption in the private sector.

  Keywords: Business and Shareholder Relations; Public Ownership; Performance Expectations; Economy; Crime and Corruption; Ethics; Trust; Financial Services Industry; United States;

  Citation:

  Salter, Malcolm S. "How Short-Termism Invites Corruption—And What to Do About It." Harvard Business School Working Paper, No. 12-094, April 2012.  View Details

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