In May I hosted the City Week 2019 panel debate on ‘Transforming Culture in Financial Services’. We had a rich discussion on the role of senior leaders in shaping culture, creating transparency and rebuilding trust – peppered with numerous examples from the panel on how their institutions have shifted culture. The focus on culture, social purpose and talent was a resounding message throughout the 2-day event, concluding that despite good intentions and organisations’ efforts, there is still a deeply felt unease in what the industry is doing to improve its reputation and stability.
The City Week debates also focused on the UK’s role in the Global Economy. With Brexit dominating discussions, MP John Glen described London as a “global financial hub” and spoke of the need to “unlock global activities”. In support of this, the Spanish Minister Nadia Calviño spoke of the need for inclusive globalisation and social sustainability through shared values. Whilst globalisation brings its own cultural challenges and tension, an industry-wide shift towards broader purpose may help to align our values across the globe.
Reflecting on all the discussions and the fact that despite additional regulation, reports, bodies and debates on culture, we still seem to be plagued with financial scandals and misconduct that overshadows the industry’s broader more noble purpose of helping the economy grow. The number of FCA investigations into City Directors has more than doubled in the past two years[i] with conduct-related fines across the UK topping $350 billion[ii].
As noted by Dame Colette Bowe, Chairman of the BSB when pressed by MPs on why change has been so slow; “some progress was being made, but I think we would all – as we sit here in this room today – be foolish to go any further than that.”[iii] Indeed, Bloomberg notes that whilst incentives have been shifted and risk taking has reduced, one area in which firms are looking increasingly vulnerable is the personal conduct of employees[iv].
Culture and trust are about human connections and relationships that take time to nurture. Are we transforming at the right pace to not only create an ethically sound financial system but one that is sustainable and resilient to the new challenges ahead?
I would argue that the impetus for change is becoming ever greater with the continued rise and compounded impact of: digital banking and cyber attacks; changing demographics and the fight for talent; increased fragmentation and customer demands through the emergence of FinTechs and challenger banks.
So what is holding the industry back from achieving faster progress in transforming culture and how can we help to nudge it forward? In this blog I will explore three key questions:
- Do organisations still need convincing that culture is a priority in order to drive action?
- Is there a lack of understanding of what culture is and how to measure it?
- Or is the onus for driving culture change on the wrong people?
Do organisations still need convincing that culture is a priority in order to drive action?
No one can deny that culture is dominating discussions at Financial Services events, conferences and regulatory policy debates, however do our leaders truly believe that culture is a priority when it is far less tangible than the balance sheet? Christine Lagarde put it succinctly when she stated that, “those working in the financial sector must be as serious about values as they are about valuation, and just as passionate about culture as they are about capital”[v]
And they say that they are: As noted by Lloyds Banking Group’s Lord Blackwell, culture is always at the top of the Board’s agenda and is a driver behind so many other topics that they are trying to achieve. While the established players are talking about culture and making efforts to shift it – the challengers are living it by creating consumer-friendly cultures and a drive for greater social purpose within the industry. It is clear that a consumer-focused culture makes firms more attractive to potential customers and talented employees, which, in turn, increases profit[vi]. But is a consumer-focused culture enough? Monzo CEO, Tom Blomfield argues that a customer-centric culture aiming to deliver positive social impact is necessary for economic success. He describes how initially successful companies with unethical cultures (such as Uber) find it hard to sustain their position in the face of a consumer backlash[vii].
An effective culture also helps to deliver great customer experiences. Metro Bank describe their ‘FAN’ culture as key to exceeding their customers’ expectations. “Our culture is about our colleagues having a sense of belonging and purpose. If you want to create FANS, your colleagues need to be FANS, which is why we treat our colleagues the way we want them to treat our customers”[viii]
It should be noted that although it’s easy for these new players to create their desired culture, it must evolve as they scale-up. I recently spoke with Monzo’s Tristan Thomas and asked him how will Monzo maintain their culture growing at such pace. He shared that their culture has changed since Monzo started and will continue to do so – with the value of ‘default to transparency’ guiding the way they interact with their people and customers.
So what can the larger institutions learn from these challenger banks about making culture front and centre of their strategy? During the City Week panel Kim Newell spoke about State Street’s drive for a greater purpose of ‘creating better outcomes for the world’s investors and the people they serve’. Kim noted that being able to align personal purpose and organisational purpose drives motivation and ultimately better outcomes for organisations. At State Street the simple addition of the word ‘people’ instantly enabled individuals to better connect with their purpose.
From our panel discussions and participation in recent debates, it is clear that culture is getting more than its fair share of airtime – but a niggling concern remains: is it all talk and no action?
Is there a lack of understanding of what culture is and how to measure it?
Industry leaders indeed show an understanding of organisational culture, but admit there are wider difficulties in translating this into action: This issue formed a core part of our panel discussion at City Week 2019, with Lord Blackwell stating whilst culture can sound ‘soft and woolly’, it’s about behaviours that that people expect of their colleagues, the behaviours expected of them and shapes everything we do.
Culture, simply put, can be defined as ‘the way we do things around here’. It is comprised of not only visible behaviours, but also of unspoken rules, ideas, norms, and subconscious beliefs[ix] and by its very notion can be difficult to understand. Not only this, as noted by the FCA’s Jonathan Davidson, culture is often deemed as a ‘soft’ discipline that can be very hard to measure. Its intangible nature has left business leaders pondering how to influence and transform culture and more importantly how to measure it[x]. As such, this year the FCA established CultureSprint events, bringing together multi-disciplinary experts and industry leaders/managers to identify, explore and create solutions around key culture topics.
With no standard set of culture metrics[ix], measuring culture can be perceived as highly complex. We regularly work with clients to define culture and conduct frameworks using a blend of forward and backward-looking metrics and control indicators, such as compliance breaches, # decisions made outside of committees, regretted attrition rates by grade, to name a few. How culture is measured will depend upon the cultural priorities and risks faced by an organisation – again, there is no one size fits all approach. Additionally, more and more organisations are leveraging innovative solutions from RegTech such as sophisticated text analytics on internal and external communications, as well as sentiment analysis on company mentions in the press and on social media[ix]. The crucial point here as noted by Morgan Stanley’s Clare Woodman, is that it is not something you measure once and leave, you have to work at culture the whole time. Ongoing check-ins, tracking and monitoring are required to measure progress and identify areas where we need to tweak the dials.
It is natural for us to look to other firms that are perceived to have been ‘successful’ in changing their culture, however we have to ask ourselves is there a right ‘culture’ for Financial Services? Each firm’s culture is different and that culture is not optional, it exists whether we like it or not[x]. Freshfields’ Emma Rachmaninov offered some useful insights for organisations to consider when assessing their culture, by stating that a culture that is right for one organisation may be different to a culture in another. Organisations do however have a say as to how their respective cultures are defined and embedded. Emma went on to say that the key things Leaders need to think through when defining their culture are; what are the outcomes that they trying to achieve? Is this culture right for the organisation? Is it real for the people who need to live with it?
With better definition and measurement of culture we can identify the key areas of our culture and conduct that require amplifying or improving, rather than applying a broad brush approach and measuring what we already know.
Is the onus for driving culture change on the wrong people?
At the Conduct and Culture Forum in October 2018, I spoke about the role leaders play in driving culture change, since Leadership behaviours account for 70% of the drivers of organisational culture[xi]. Whilst “tone from the top” absolutely needs to be reflected to employees in a consistent way, the role of others in spearheading change formed a great deal of debate in the more recent City Week 2019 panel. As noted by MC Anthony Belchambers (also Chairman of Saxo Capital Markets and Non-Executive Director, Westpac Europe), for the majority of employees, their “top” is not the Board, it is actually their Line Managers. Line Managers are the ones who monitor behaviour, codes of conduct, and most importantly, those who most employees look up to and interact with on a day to day basis. Whilst it is crucial that Senior Leaders do display the correct behaviours and messages around accountability, as Clare Woodman reinforced every employee is responsible for driving culture. Everyone influences the culture they are in, from middle managers to the most junior employees – especially as they are the people living the values and serving customers. As Emma Rachmaninov noted, it is imperative to build trust and enable a ‘fess up culture’ where employees feel safe to speak up when they have made or witnessed something “not quite right”.
If the onus for driving culture change actually sits with all employees how can we encourage and build the right culture where people feel that they are able to speak up?
During the City Week panel Kim Newell spoke about a project State Street ran to help employees focus on what they need to do to ‘speak up’. They found that the focus on ‘speaking up’ was not having the desired results and so instead they switched to helping people to ‘listen up’. They trained the entire organisation with tools on how to listen and how to respond to situations where employees may be trying to say something. As a result, positive stories were shared across the organisation of managers and leaders taking the time to listen.
This story is not unique to State Street, industry-wide only 42% of staff who spoke up about a concern, said they were listened to and taken seriously[xii]. It is therefore clear that there is a lot of work to do to create a culture in which managers actually listen to and act on concerns raised by others. In John Higgins’ latest book co-authored with Megan Reitz; Speak Up: Say what needs to be said and hear what needs to be heard, John investigates the conditions required to enable people to speak up, not only to reduce the risk of wrong-doing but also to access vital knowledge and ideas from employees. Clearly the link between speaking up and trust cannot be understated. As Lord Blackwell notes, Financial Services is an important part of the lives of people we serve. Not only do customers need to trust organisations with their money but people need to trust that when they raise concerns, action will follow.
The message is clear: leaders play a key role in transforming culture, but they cannot do it in isolation. Involving all employees in the culture strategy will drive greater ownership and faster action.
So how do we achieve faster progress in transforming culture?
I do believe that culture is seen as a priority by the industry but that we now need to widen the call to action to include employees at all levels. This alone will drive action, accountability and momentum. Whilst the pace of change is undeniably slow, we mustn’t be too hard on ourselves. Lest we forget, just as a culture is shaped over years and even decades, it cannot be shifted overnight. In my view measurement is also crucial to faster progress. It allows us to see where we are moving in the right direction and where further targeted action is required. Long term culture change is about constantly tweaking the dials, gradually changing the unspoken rules, ideas, norms, and subconscious beliefs, and edging ever closer to the desired state.
To continue nudging your organisational culture, I urge you all to consider these 3 actions:
- Test your organisational purpose with your employees and customers. Do your vision and values reinforce your purpose and do your people have an emotional connection to it? Leverage this emotional connection in driving behaviour.
- Refine your culture and conduct metrics. Take a more holistic and predictive view, consider measuring # critical roles with vacancies, # decisions made outside of committees, frequency of low level operational incidents, # boomerang employees as opposed to the easily reportable metrics like # training days. Use regular reporting as a means of reviewing progress and to inform your culture change agenda.
- Put the onus on all levels to drive culture and don’t over rely on policies and controls. Ask your people what it is that prevents them from speaking up or behaving in a certain way. Celebrate examples of where you have listened to their responses and empowered them to own small elements of the culture change agenda.
In short, we need a little less conversation, and a little more action. Please.
[i] ‘FCA investigations into City directors rise sharply’, Financial Times 19 May 2019
[ii] ‘Pursue the bankers not the bank over Barclays’, Financial Times 26 Jun 2017
[iii] ‘Overhaul of UK’s poor banking culture is slow, admits standards chair’, Guardian, 13 Nov 2018
[iv] ‘The Next Round of Bank Scandals Will Be Personal’, Bloomberg, 29 May 2019
[v] Christine Lagarde, Managing Director, IMF, Dublin, June 2018
[vi] Garner in essay 1.3 Transforming Culture in Financial Services Discussion Paper, FCA, March 2018
[vii] Blomfield, Campbell and Ashbridge in essay 1.4, Transforming Culture in Financial Services Discussion Paper, FCA, March 2018
[viii] Gillan, Harmer and Owen, in essay 1.5, Transforming Culture in Financial Services Discussion Paper, FCA, March 2018
[ix] Managing Bank Culture, Oliver Wyman 2017
[x] Transforming Culture in Financial Services Discussion Paper, FCA, March 2018
[xi] ‘Human Capital Trends,’ 2016, 2015, Deloitte
[xii] Banking Standards Board Annual Review, 2018-2019