Time for bankers to risk an apology?

By Golnar Motevalli

LONDON (Reuters) - No-one expects a fallen Master of the Universe to say sorry. But academics say an apology -- for all the litigation risk it entails -- can be the basis of revitalized confidence and trust.

With global markets paralyzed by the inability to rely on a counterparty, and as trust and accountability form the kernel of debates about effective regulation, some say a slice of humble pie now can help ensure bankers earn trust in future.

Several studies in the United States have shown doctors who openly apologized for their mistakes actually reduced their risk of being sued by patients or their families, apparently because the emotive response persuaded people to trust them.

The bankers' journey to restoring complete trust and confidence will be tricky but is ultimately necessary, said Daniel Diermeier, professor of regulation and competitive practice at Northwestern University's Kellogg Management School.

"Financial service CEOs are not exactly known for their humbleness ... arrogance is almost part of the necessary portfolio you have to have to make it to the top," Diermeier said by telephone from the United States.

One case he cited in comparison was U.S. domestic airline Southwestern Airlines, which faced intense media scrutiny in 2005 after one of its passenger planes skidded off a runway, killing a six-year old boy.

Within hours of the accident its CEO told a news conference: "there are absolutely no words to accurately state our grief and our sorrow over the tragedy."

Newspapers quoted analysts praising his response as potentially setting a new standard for how airlines would deal with crisis.

After a drop of 1.5 percent immediately after the crash, Southwest's share price climbed by 3.5 percent within a few days and by March 2006, was 11 percent above pre-crash levels.

"(Financial services show) a totally different attitude," Diermeier said. "Because the products are complicated, there's a sense that you are smarter than everyone else and aggressiveness is valued."

FEELING HORRIBLE

Since one of the first major bank collapses of the current crisis -- Britain's Northern Rock in September 2007 -- the failed institutions have demonstrated degrees of contrition.

Richard Fuld, CEO of collapsed Lehman Brothers, notably told U.S. lawmakers earlier this month he took full responsibility for his actions and felt "horrible about what has happened to the company," but insisted he shared the blame with regulators and Congress.

The entire management of Deutsche Bank have pledged to forgo bonuses this year, following Morgan Stanley CEO John Mack last year.

But so far -- perhaps on legal advice -- actual apologies have been thin on the ground. Steven Friel, a litigation partner at solicitors Davis Arnold Cooper, says his phone has been ringing "more often than in a long, long time."