Casino royale

Trust in commercial interactions comes down to the following: I count on you – you verify expertise, you demonstrate reliability, you develop a relationship with me, and you balance our relative interests professionally.

In other words, I do not feel I am being lied to, manipulated, or having my interests made secondary to your avarice or selfishness. There is fundamental transparency of the value equation, of the risks and the likely returns, and from where both the risk and returns will likely emanate.

The post-Great Depression ban on investment banks and commercial banks being the same entity, the Glass-Steagall Act, was done away with in the latter part of the Clinton administration, and we are looking at the wreckage and debris of that portentous decision. What we once learned at such overwhelming cost in the early part of the 20th century, we are forcing ourselves to re-learn painfully and vividly once more early in the 21st century. Or are we - learning, that is?

Today, despite arguments from Paul Volcker, former Fed Chairman, there is no will it seems to build that dam again and break up these activities. The nostrum is that it was absence of regulation that was the regulation. And as contentious bills about the nature of such regulation are buried in the bowels of the legislative agenda in the US, new derivatives are being dreamed up, and runaway bonuses are being contemplated again by institutions who are still unrepentant addicts.

Across the pond, a similar cry is going out, hopefully with more receptivity, by Mervyn King, Britain's equivalent of Federal Reserve Chairman, focusing in particular on the too big to fail banks, and sounding the cry to separate investment and commercial banking. As these battles are waged, how can we regain trust until fundamental issues that led to the meltdown are faced squarely, addressed and decisive corrective action is taken?

Rebuilding trust, as companies as diverse as Johnson & Johnson, Perrier, Merck and others have learnt, comes from full disclosure, corrective action no matter how painful in the short run, and creating a new contract with clients, consumers and society at large. Even if you are not technically to blame, you accept accountability, and you rebuild a new platform for future governance. You do this because you come to now define success in these terms, because social capital has to be replenished.

Towards that end, other questions have to be asked. On that is critical is how are you incentivising? Plato told us from Ancient Greece that, "What is honoured in a country will be cultivated there."

So if we incentivise people primarily on placing deals, or mortgages, then the longer term sustainability or value-creation of a deal becomes incidental. The costs to the institution, to society, may be significant.