TURNER REVIEW
June 16, 2009
SCOTTISH FINANCIAL ENTERPRISE RESPONSE TO THE TURNER REVIEW
MINDING OUR LANGUAGE
Scottish Financial Enterprise (SFE) is the representative body for the financial services industry in Scotland. Our members range from multi-national banks, pensions and insurance companies to small, specialist business services organisations.
Some of our member companies will respond to specific questions posed in your Review where they apply to their businesses; and other representative bodies will respond for the interests of their members. But we think your Review is also an opportunity to address some serious but broad questions relating to communications, particularly the language we use. The industry needs to explain what it does, and why, clearly and in layman's terms. And when it does communicate, it needs to consider whether the information it presents is transparent enough, and whether it prioritises the critical facts and figures correctly.
Language
The bubble that created ever more complex and risky financial products and innovations also created runaway growth in jargon and unnecessarily complicated terminology. That is partly because all groups, when they are in a (seemingly) comfortable bubble, tend to exclude others by their use of language. In financial services, as activity became increasingly global and frenetic, perhaps it suited us to claim possession of special knowledge, cloaked in special language, to justify fees and charges to customers as well as to reinforce our own sense of our wisdom and significance.
While everyone is making money, nobody pays too much attention. But when the precise meaning behind the words suddenly becomes of crucial significance, the language is found wanting.
This is not just a nicety. If we use some terms not understood by all parties, that misunderstanding is multiplied across transactions and conversations. The original meaning becomes lost, but the product is out there, with ever more people committing to something they simply don't understand. And it got so baroque and far out of hand that some very senior people now have to admit that even they did not understand the meaning behind the words being used. ‘Collateralised debt obligation' is just one example.
Of course, critics might say that was precisely the purpose of the some of the strangulated terminology. But whether it came about by accident or design, it needs to change.
So as we move to fix things, we need the right linguistic tools. And we need to guard constantly against the undermining of meaning in our communications by self-referential language understood only by insiders. That requires discipline and a tough-minded approach to asking the question, constantly and repeatedly, ‘what do you mean?'.
Among consenting adults, there is room of course for the rarified and esoteric. But it needs to be confined to that space and only let out with a minder who can keep an eye on whether everyone who needs to understand it is doing so.
This should start with the basics. Why say ‘mortgage', when we mean ‘a loan to buy a house'? Why say ‘pension' when we mean ‘savings for retirement'? Why say ‘sub prime' when we mean ‘ high risk'? Why say ‘equity' when we mean ‘shares'? We need a new lexicon, where the meaning is clear from the words and we are not required to look in Investopedia.
We don't have that lexicon on our shelf, ready to hand out. There is much to debate and consider. But our industry needs to be better understood and this is vital to achieving that.
Company reporting
As well as addressing the specifics of language, the industry needs to look at where that language is employed. It is worth examining where the communications focus is for a company, and whether we can use the opportunity of this review period to improve the quality and range of information we offer our audiences.
One is example is annual reports. As well as being a statutory requirement, these are the traditional focus for a company to present itself to a broader audience. Much thought goes into the look, feel and quality of those publications, sometimes to the detriment of transparency of reporting. More needs to be done in addressing the nuts and bolts of the content. The balance has to be readdressed, ensuring that the vital facts and figures on performance are not relegated to small type in the back pages, but are instead the central focus of the document.
Altogether, the industry would do well to review the way it explains itself, ensuring that the marketing of products does not dominate at the expense of wider understanding: after all, recent events tell us that financial services are central to the proper functioning of our economy and our society. Popular understanding of them needs to reflect that.
Conclusion
We need to regain the full trust of customers, investors, shareholders and governments and those that elect them. Changing the way we do business, and the relationship between the three big players - industry, regulators and government - is critical. But so is communication. Some have already recognised this but there is a long way to go. Clarity of language, and greater consideration of the needs of consumers of that communication, must be part of the new approach.
Owen Kelly
