Conduct & Culture - Gaining attention in Financial Services
Lara Haskins, Senior Manager in the Advisory Team at PwC CI
Some of you may remember the fatal explosion of the NASA Space Shuttle Challenger in 1986. I know it was 30 years ago and across the Atlantic, but underlying factors that contributed to the event have made for insightful case studies. The explosion demonstrated how cultural elements of NASA, those of hierarchy, intimidation, perceived pressure, and management’s discouragement of reporting bad news1, did not allow critical communication to be passed up the chain of command to support informed decision making.
NASA is not like Financial Services (FS) but there is some connection; “culture” and its potential positive and negative impacts on behaviours and outcomes. In recent years, FS firms globally and here in the Channel Islands have experienced an increase in regulatory requirements and scrutiny. This has been spurred on by the 2008 financial crisis but has continued with other global high value scandals. The messages coming out of regulatory investigations point to “culture” as a root cause of many poor market, organisation and client outcomes.
What do we mean by “Culture” and where does Conduct fit?
Think of a few words to describe your organisation - competitive, quality-focused, a community, ethical, one of entitlement, rewards risk-taking? You’re describing elements of your organisational culture – “how we do things around here”.
Culture is the assumptions or beliefs that are common in an organisation and help predict how people will behave. Conduct is the observable behaviours that come from those beliefs. Some say that culture influences conduct but also conduct influences culture. The challenge with culture is that it won’t easily change without a pervasive force and any change can take a long time.
Why is Culture Important?
So if culture is difficult to change and takes a long time, then why bother? From research and experience, we know that culture, if well managed, has a greater correlation with sustainable high performance than strategy, operating model or product coverage2; even great strategies can be resisted by strong cultures. Most of us could point to a company, even locally, where culture has led to distinct competitive advantage, customer and employee retention and ultimately growth.
Culture can also lead to poor behaviours and negative outcomes as experienced by several FS firms. In 2013 the Financial Conduct Authority (FCA) was formed to provide supervision to now over 70,000 UK firms. Conduct and Culture is high on their agenda, placing greater expectations on organisations and Boards to address behaviours that pose a risk. It is clear for some organisations that unfavourable cultures can lead to stakeholders losing trust in the capacity to do the right thing. When you are dealing with money and an expectation to perform, losing trust can lead to a catastrophic failure both for an organisation and a jurisdiction.
What if your culture is no longer fit for purpose?
Where do you start? First, you need to understand your current culture and the environment that helps shape it. An assessment of your current culture gives you useful insight, and in the case of Conduct issues, can highlight any behaviours and reinforcers (performance management and rewards, processes, unwritten rules, leadership action etc.) that could point to ongoing risk or opportunity across customer, market, employee and corporate conduct.
Next, get clear about the culture aspirations which will drive your priorities. Identify the few behaviours that need sharpening, and focus on “moments that matter” – interactions and decisions where behaviours have a disproportionate impact on outcomes (e.g. complaint handling or key customer interactions) - to create the greatest impact.
A key element to evaluating and reinforcing culture change is measurement. Be clear about what outcomes you are expecting, the behaviours that are needed, and how you are going to collect and use information. Cultural measurement is becoming a critical tool for many global banks.
Lastly, Conduct and Culture tend to sit in different parts of the business, managed by people working to different objectives - we have seen this both locally and globally. Collaboration is needed to encourage alignment throughout the organisation and with overarching strategy.
Creating a winning culture is a powerful way to enhance your reputation, build trust and support operational excellence and growth; having the right culture is essential for achieving good conduct performance. To find out more about PwC CI’s Advisory services, contact Lara Haskins
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