Companies and businesses impact on almost every part of our everyday routine. The way in which a company fits into the society in which it operates has become increasingly important. It is crucial for businesses, whether it’s just to attract and maintain the best staff or to cater to increasingly socially conscious shareholders and investors.
GE takes its role as a good corporate citizen very seriously. Being a good corporate citizen manifests itself in different ways across the different areas in which GE operates. For example, Ecomagination is GE’s company-wide commitment to helping our customers to meet environmental challenges.
Through its Ecomagination initiative, GE is committed to investing $1.5 billion a year into cleaner technologies in 2010. It is also looking to double its revenues from products and services that provide ‘significant and measurable environmental performance advantages’ to customers from $10 billion in 2004 to $20 billion in 2010. These products include renewable sources of energy such as wind and solar, technologies and materials that make energy production and consumption more efficient, cleaner and more efficient transportation technologies and products and services that conserve or purify water.
This is all well and good, but how can a financial services company show the same commitment to being a good corporate citizen? One clear way is to ensure that responsible lending is incorporated into the very fabric of your business.
We are all familiar with the concept of responsible lending. It helps companies; it reduces risk, improves reputation and results in lower rates of defaults. The concept of responsible lending is underpinned by the Financial Services Authority’s (FSA) principle six, ‘A firm must pay due regard to the interest of its customers and treat them fairly’. The need to act responsibly and treat customers fairly has never been more important than in today’s regulated and highly scrutinised market.
Who is responsible?
While external factors such as regulations and data sharing clearly impact on responsible lending, internal policies and business practices are equally as important. Legal and compliance teams have a key role in fostering a culture that encourages ‘Treating Customers Fairly’ (TCF) and being a responsible lender. However, TCF is not just the responsibility of one function, it needs to be incorporated into the fabric and culture of any business.
Where in-house legal counsel and compliance teams can really add value is by showing the business exactly what the drivers are behind regulation and responsible lending, rather than simply implementing the black-letter rules. And, where we are looking at guidelines not prescriptive rules, advise the business of interpretation and implementation.
What will work for the industry is being perceived by consumers to be fair, open and transparent. The FSA provides guidelines, not directives, so the onus is on the lender and broker to interpret how to treat customers fairly and how to implement responsible lending.
Responsible borrowing
While there is clearly an onus on lenders and brokers to lend responsibly, responsible borrowing is also a key part of the equation. The industry can play a role in educating and encouraging consumers to borrow within their means. GE is committed to supporting the education of customers so they can make informed decisions with regards to their borrowing needs and have a realistic attitude towards debt. Schools, families, society and, of course the industry can all play a role in this education. When a borrower signs a contract, they must understand what they are agreeing to and when a lender or broker has any dealings with a customer they must ensure they encourage responsible borrowing and treat customers fairly.
Live and learn
Everybody in the industry – lenders, brokers, packagers and borrowers – all have a vested interest in encouraging responsible lending. Lending is by no means an exact and perfect science; there is no foolproof set of rules that guarantee a happy outcome for all concerned. But the risk of problems can be vastly reduced with careful underwriting procedures and checks and balances.
What is certain is that examining the suitability of products, working closely with regulators, improving data systems and encouraging responsible borrowing will go some way to instilling a culture of responsibility in the industry which will in turn repair public trust and drive business.
At the heart of the issue, responsible lending is about transparency, enabling and empowering consumers to make informed choices. Credit is an integral part of our lives. If used properly, it can be a very useful tool. But lending and borrowing must be clear, open and responsible and this must become more than a business principle and become part of the very fabric of the industry.
External focus, one of the GE Growth Traits, is crucial in determining how stakeholders perceive us when we enter new markets. How a company relates with governments, the media, its employees, and the community will brand it more than any advertisement ever could. It creates the word of mouth that defines the context for how our business operates. Getting this right helps companies compete. Getting this wrong makes every step of conducting business – be it regulatory approval, media recognition, public acceptance, or attracting talented employees – that much more difficult.
