Culture is back on the agenda and instantly I hear you say: ‘Aghhhhhhhhhhhh, not again, please no, not again!’
But wait: let’s look at what’s been happening, then we can decide, OK?
The UK Financial Reporting Council (FRC) released its report on Corporate Culture and the Role of Boards a few days ago. Sir Winfried Bischoff, the Chairman of FRC, stated:
‘There needs to be a concerted effort to improve trust in the motivations and integrity of business. Rules and sanctions clearly have their place, but will not on their own deliver productive behaviours over the long-term. This report looks at the increasing importance which corporate culture plays in delivering long-term business and economic success.’
Nobody would argue with the Bischoff’s statement above; it makes perfect sense.
The FRC report follows hot on the heels of a detailed and instructive speech by former Barclays chairman Sir David Walker, delivered at a conference on banking culture and conduct and shared by the Banking Standards Board.
Legitimate banking business
The speech focused on the recent G30 report Banking Conduct and Culture: A Call for Sustained and Comprehensive Reform, the executive summary of which begins with an extract from an 1863 letter of guidance to bankers from the US Comptroller of the Currency.
‘Pursue a straightforward, upright, legitimate banking business. Never be tempted by the prospect of large returns to do anything but what may be properly done under the National Currency Act. ‘Splendid financiering’ is not legitimate banking, and ‘splendid financiers’ in banking are generally rascals or humbugs.’
In the modern setting, the G30 report continues:
‘There must be a sustained focus on conduct and culture by banks and the banking industry, boards, and management. Firms and their leaderships need to make major improvements in the culture within the banking industry and within individual firms.’
Which statement makes more sense to you? I find the latter problematic, and the former spot on – yet we have had 153 years of corporate evolution since 1863 and, by now, we should really be reaching the essence of what needs to happen in terms of organisational culture.
Tone at the top
For those who may have read my previous blog on culture and highlighting the UK’s propensity to write exceedingly good reports on what went wrong or what needs to happen in banking, surely are we not here yet again?
There is an abundance of rhetoric on how we should engage in changing culture but it is essentially very simple: at its core, culture change can only happen if at least two things are in place.
The first everyone knows: the tone at the top. If that is not there, no organisation has a chance of developing an ethical and sustainable culture. Compliance measures alone are not enough – clear cultural values with a focus on integrity need to cascade through the organisation.
The second requirement is more complicated. For culture to change, there needs to be an acceptance at all levels that the culture is not good. How do we know? Well, I think we all know when there is a less than desirable culture in an organisation.
‘Do more with less!’ is the reality and the starting point in many commercial organisations and this drives their culture. So the commercials are driving culture and therefore we should not really be surprised at the outcomes. BHS and VW are useful reminders of what can go wrong. The fallout? For BHS, the cost is 11,000 jobs and a potential pension deficit of £571 million; for VW, the sanctions costs in the US alone are in region of $15 billion.
The numerous reports and analysis on culture miss the obvious. If an organisation’s culture is driven by commercial realities, day to day, employees are going to be focused on one thing and one thing only: their targets or personal objectives.
On this point, even this morning on Radio 4, it was reported the convicted ex-UBS trader Kweku Adoboli, suggesting not enough was being done to change culture in companies and it was the drive for profit that encouraged bad behaviour. Adoboli believes traders experience the identical pressures he did to make profits ‘no matter what’.
Anthony Browne, CEO of the British Bankers’ Association, was also on Radio 4 this morning, highlighting key aspects of what he suggests is a ‘cultural revolution’ going on since the LIBOR scandal, citing many examples including changes in corporate culture, management of risk and standards. In particular, he spoke about the Senior Managers Regime and accountability in banks.
Ask yourself this question. In your current business plan and personal objectives, is there a personal objective that rewards ethical and sustainable culture or behaviour? If so how is it measured? What percentage is weighted towards the commercial performance against the cultural performance (if that measure exists)?
I think part of the problem in addressing the concept of corporate culture is that everyone can appreciate in theory what good corporate culture is, but how often is good corporate culture reported? Rarely, I hear you say. Is that because there’s not a lot of it around? Or is it simply because it is not newsworthy?
In the Oxford Dictionary, corporate culture is defined as ‘the ethos of a particular company, or that of large businesses in general; the approach a company takes towards the working environment of its staff.’ I would argue that this does not go far enough.
DNA of the corporation
When I talk about culture, I think it’s a deeper and a more critical aspect of any organisation. It is the DNA of the corporation – and here is the tricky part. How can we ensure that the DNA of an organisation is ‘good’ DNA, which abides by ethical rules and boundaries and protects the interests of its people, customers, shareholders and society? It’s a very big ask, even potentially moving into the realms of religion and spirituality.
Double ‘Agggghhhhhhhhh!’ I hear you now say again. But there is some interesting work being done by the likes of Richard Barrett and his seven levels of organisational consciousness, which suggests, in my interpretation, that the core of the problem in the banking sector is that it is not yet ready to achieve the higher standards of consciousness (linked to mutually beneficial alliances and social responsibility) that all the banking reports and rhetoric espouses.
From my perspective, scandals and breaches of corporate culture will continue, despite the numerous bodies set up to tackle the culture problem.
So what’s the answer? Ryan Holiday in his book The Obstacle is the Way recounts how NASA engineers were taught to overcome complications. His quote, ‘Uncertainty and fear are relieved by authority. Training is authority.’ This statement really resonates with me. To that, I say let’s have fewer reports, commissions, bodies and so on, and more experiential learning and training as to how to create good culture – and sustain it.
To find out more about ICA qualifications in governance, risk and compliance – including conduct – anti money laundering, financial crime prevention, why not register for one of our free information sessions, for an insight into how ICA qualifications can enhance your career.
To stay updated on the latest developments in governance, risk and compliance, anti money laundering and financial crime prevention, please follow us on LinkedIn, Facebook and Twitter where you are guaranteed to be notified when our next blog post goes live!