Is culture entwined with conduct?

Corporate Australia has experienced something of a watershed moment over the last twelve months. The Royal Commission has identified systemic problems at the heart of many of Australia’s financial services (FS) organisations — companies whose activities ripple through everything from the national economy and major industries to the financial wellbeing of individual businesses and families. The Commission has unearthed a spectrum of issues that range from compliance breaches and fraudulent conduct to poor financial advice and ethically questionable practices. 

Paradoxically, within the same landscape, retail (including FS organisations) have become increasingly purpose-led and customer-focused. Significant energy and investment has gone into ensuring that work has meaning and connects to a purpose; enabling employees to make a difference by delivering value to society beyond better shareholder returns and balance sheets. Organisations have also worked to make sure that the way of doing business is centred around providing a positive customer experience throughout the entire product life cycle in order to drive repeat business, customer loyalty and profits.

Interestingly, in part driven by local regulatory requirements, Australian institutions have been very active in assessing their risk culture and organisational culture more broadly compared to their global peers.

So why are we seeing a disconnect between the attention on culture and its impact on conduct?”

In short, the Royal Commission has shown us, through real-life examples and case studies, how organisations can drift away from their core purpose, values and duty to customers.

It has proven that no matter how well-intentioned, the FS industry’s efforts haven’t been nearly effective enough when it comes to fostering an effective risk culture. For too long, FS organisations have fixed their attention on “front of house” customer service and satisfaction rather than making difficult decisions about trade-offs to ensure the right prioritisation on addressing inadequate capability, systems and processes. The cumulative effect of not addressing these operational and capability issues has led to a ‘normalisation’ of the problems rather than taking accountability for fixing them.

There’s no denying that these events have eroded the trust customers have placed in the FS sector — and created a crisis of confidence within financial institutions. But it also represents a compelling opportunity to reset the ways in which organisations understand their culture and rethink the root causes and outcomes that are the result of this core culture.

Now is the time to look beyond the prevailing approach to risk culture taken by the majority of institutions to date. We’ve seen how the traditional way of handling it — the process of conducting reviews to assess problems and come up with clear-cut answers and recommendations that are actionable in the short-term — continues to fail. This diagnosticheavy methodology has certainly helped organisations identify issues and simplify how they are described and communicated to create better understanding, alignment and acceptance of the problem. We’ve seen that boards and management have listened and shown genuine concern when presented with evidence of a culture described as “avoidant” or “blaming” or one that sends a message to employees that say “turn a blind eye” or “don’t speak up”. But identifying and labelling the problem isn’t enough. Moving forward, more of a focus on the interventions that meaningfully change culture is essential. There is no doubt that this is a much harder task — and will inevitably require tough decisions to prioritise investment that results in real trade-offs as well as an ability to sustain the relentless commitment needed to fix complex and deep-seated issues.

Further, assessing culture by management interviews and surveying staff to understand their attitudes to risk or engagement levels provides only part of the picture. While the survey and interview based approach taken to date has no doubt raised awareness of the importance of risk culture, it has focussed too much on understanding staff perceptions and not enough on the infrastructure needed to support and encourage the right behaviours. A more three-dimensional approach considers employee performance and a deeper understanding of the conditions — including organisation structures, processes, systems, education and incentives — by which an employee’s behaviour is shaped. 

So where can we start? The following considerations offer new ways of thinking about and driving positive change across your organisation — both now and into the future.