Medius and Alderbrooke had the pleasure of hosting a breakfast briefing on the 6th February – Accountability for Culture under the Senior Managers and Certification Regime: Challenges & Opportunities.
Over 26 financial service organisations joined our speaker line up which included three experts in this space; Andrew Williams, ex-Global Head of Compliance at UBS; Vaughan Edwards, Director at Medius; and Hani Nabeel, Head of People Analytics at Alderbrooke.
Andrew introduced the session by sharing his experience and set the context on how the last ten years have shown beyond doubt the problems that arise when organisations have a misaligned or toxic culture. While the temptation is always to claim it is just a few bad apples, as Minouche Shafik said when she was deputy Governor of the Bank of England, sometimes it is more than this and you need to fix the barrel. The difficulty lies in knowing where to start. If the right culture is key, assessing that culture and managing the improvement is critical.
Vaughan then considered the implications of individual accountability for culture and how the UK regulators have communicated the importance of culture since they identified it as one of the key contributors to the banking crisis. However, it was only with the introduction of the Senior Managers regime in 2016 that they acquired effective tools for supervision and enforcement activity in this space – “the Accountability Regime is directly targeted at the culture of firms” (Jonathan Davidson, FCA, 2017). Most specifically, firms subject to the existing regime and ‘enhanced’ firms under the proposed new regime need to allocate (usually to the CEO and Chair) two culture-specific prescribed responsibilities.
The challenge for those Senior Managers charged with the responsibility of overseeing the development and adoption of culture is how to evidence ‘reasonable steps’ in relation to the discharge of those responsibilities. Culture-related contents of meeting minutes along with relevant (‘tone from the top’) speeches and articles are all helpful in this respect. However, the key challenge is how culture can be measured – how can a CEO or executive team get hold of credible cultural metrics?
FCA has talked about measuring culture with reference to outcomes e.g. demonstrating that conduct & culture factors considered in remuneration decisions. These measures are useful but have the obvious limitations of being inherently retrospective. In an attempt to produce better cultural metrics, firms have collated ‘proxy’ metrics by gathering data from areas such as HR and Compliance (training attendance, PAD and other breaches etc.), however there is clearly scope for more precise and sophisticated measures.
A failure to evidence reasonable steps can have very severe consequences for individual senior managers. Those tasked with the responsibility for the firm’s culture should consider significantly enhancing any proxy and outcomes-based measures in ways that (a) enhance cultural oversight and (b) provide very tangible evidence of the discharge their duty of responsibility.
Firms and senior individuals in the Financial Services industry have the opportunity to enhance both compliance and competitiveness through adopting a fundamental change in their approach to culture and leadership. Transforming the shared values, beliefs and hidden assumptions that shape how the individual and organisation behave, will enable firms to truly unlock their full potential and minimise risk.
So how do we achieve this? Hani shared his expertise and findings from the seven-year research study he conducted with over 51,000 participants, in 61 countries across 60 organisations and supported by 3 business schools, which identified 15 critical behavioural dimensions to measure culture.
Using an innovative and scientifically validated diagnostic, like CultureScope, organisations can address a range of business challenges from innovation and digital transformation to inclusion and customer satisfaction. In terms of reducing risk, Hani flagged 8 behavioural factors that impact an organisations ability to manage risk effectively and most importantly how to measure if the behaviours are present, absent or conflicting.
For those unfamiliar with CultureScope, it enables organisations to decode their culture and deliver actionable insights to drive their businesses forward. These insights, combined with the business strategy and KPIs, provides a data-driven measurement to culture aligned to business outcomes.
In summary, corporate culture is one of the most critical levers for keeping organisations out of trouble IF the right individual and organisational behaviours are present to manage risk. This means we can no longer say we don’t know how to create a culture fit for purpose – if we can measure it, we can manage it!