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Embedding a Good Corporate Culture in Financial Services

by Barbara Ridpath

Posted: 16 Oct 2014

This article is the second of two based on a speech given on 25 September 2014 at the OwenJames Group conference 'Mindful of Good Culture in Delivering Great Customer Outcomes.'  The first article can be found here.


How can a firm create and embed good culture throughout the organisation?

Let's start by defining what good culture is not.  It is not a public relations exercise.  While it can be helpful to a firm's public image, if it is done for that purpose, it is destined to fail.  It is not an exercise to please your regulator.  Making the regulator happy is a necessary but insufficient condition of this exercise.  It is not a one off, but a process of constantly evolving and adapting to changes in the markets, your clients and your staff.

Culture is made up, not of mission statements and policy documents, but of the values and purpose of the organisation and how these translate into behaviours throughout the organisation.

Corporate purpose is far bigger than 'making money' and far more than a marketing tag line or a list of products.  At its best it combines both a business purpose and a social purpose.  Social purpose is not just some add on, like one's Corporate and Social Responsibility (CSR) policy, but the inherent reason for being for the organisation.

Most such statements are neither good, nor useful nor true.  HSBC's is not bad.  It reads: 'Throughout our history we have been where the growth is, connecting customers to opportunities.  We enable businesses to thrive and economies to prosper, helping people fulfil their hopes and dreams and realise their ambitions.  This is our role and purpose.' [1]

Any statement of corporate purpose is meaningless if it is not implemented and acted on.  An inauthentic statement of corporate purpose is just a slogan.  You want something simple that tells the world what you deliver, why and how it is beneficial to the customer, the company and the world.

The values aspect of culture is more straightforward.  While there is a need for the culture to constantly evolve, the values that the corporate culture embraces are not constantly evolving and adapting; they should be constants, steadfast in the face of change.  The way customers demand to be treated may change, but what is right and what is wrong does not.  A firm needs to be able to look at new products and services through the lens of its values.

The value of 'truthfulness' is the touchstone in creating an honest culture.  This means senior personnel have to be willing to hear bad news and make difficult decisions.  A culture that discourages people from speaking out, or discussing an issue with their boss, will invariably produce the 'bad surprise' be that from risk, regulatory, product performance or financial performance.  It is ever so much easier to resolve a problem at the moment of discovery than after it's been swept under the carpet for a while.  The reasons for internal honesty are evident, but it is a value that needs to be held not just internally, but with respect to customers and external stakeholders as well.  In fact, it is impossible to hold a value only with respect to one or certain stakeholders.

If a value is important, then it is important to all stakeholders.

For the culture to permeate the organisation, so too must the purpose and the value.  They need to be both inherent and consistent from the Human Resources department, to the product development process, through to the financial reporting and governance processes.  Most importantly, any incentive structures, whether for pay or advancement, must incorporate both the purpose and the values.

Companies are collectives.  You can't treat the staff badly and customers well; it's about how you treat people.  You can't spoil the customer and cheat the employee; it's about how you integrate appropriate behaviours at all levels of your work.  You can't praise honesty and then tell a staff member you don't want to hear bad news.

How should firms tackle the subject of culture?

First, it is an integrated process that needs to touch and reach the whole organisation.  This produces a sense of co-ownership of the mission and role, a sense of inclusion and 'buy-in'.  Second, it needs to be both top down and bottom up.  Third, the Board and senior executives need to model the behaviours that they want from their staff.  Fourth, accountability is critical.  A team culture where peers address concerns immediately, directly and respectfully with each other resolves problems better and more efficiently than pushing them up the chain of command. [2]  Last of all, a firm needs effective communication and challenge.  This is particularly true in areas of risk, but also in product development and particularly in the links between things like new product development and IT.

Your staff and your customers will be happier.

There are remarkable benefits to getting culture right.  First of all, your staff will be happier.  They want to be honest, to do well and to be proud of what they do.  The more they can bring their 'authentic self' to the office, the more that will show through to the end client.  Staff will stay longer and be nicer to your customers.

Your clients will feel like people not numbers.  Put yourself in the customer's place.  Would you like to be on hold for 5 minutes?  Would you like to pay good money for a flawed product?  When you reported a problem, would you want to be shunted from pillar to post?  Would you like to give five separate people your customer details when you call the service line?  A satisfied client is more likely to stay with the firm.  Any marketing manager will tell you that a retained client is a cheaper and more profitable client than a new client you have to find.

In the long term, your shareholders will be happier too.  There will be fewer regulatory penalties, fewer nasty surprises in the financial results, and a more consistent bottom line.  While shareholders good quarterly earnings, what they really prize is consistency and visibility of results without bad surprises.

So how do you get there?

The process is iterative; both top down and bottom up.  To get employee buy in, staff need to be brought along from the very beginning of the process of identifying corporate purpose, values and culture, not just handed down the company values on a mouse mat, a laminated card, or a framed poster in the office after its finished.

Not only must senior staff model behaviours, but staff advancement should be clearly and visibly based on these values.  If teamwork is enunciated as a firm value, then rewarding people who don't share information or credit for success will quickly demonstrate to staff that the firm doesn't really value teamwork.  If a firm says it values its talent but consistently hires in external staff for senior positions, then it's not telling the truth.

Incentive systems also need to be rethought in a way that reinforces good behaviours.  These are not necessarily all financial; peers can have a major role in reinforcing good behaviours, as can non-financial recognition such as access to mentoring or inclusion in certain events.

I am not suggesting that this kind of joined-up behaviour, nor changing any culture, is easy.  There will invariably be tensions across business lines and among the varying objectives of the firm.  Nevertheless, if the process is seen as an iterative one, and one in which the firm and its people are continuously trying to improve, and if you can look at even the conflicts through the lens of the firm's purpose and values, such tensions should become easier to resolve.

How do you know how you're doing?

Not everything that can be measured matters, but nonetheless, management and staff need a bit of a road map to evaluate progress.  Here is a short list of possible metrics:

· Customer complaints,

· Staff turnover data, particularly unplanned, and particularly by department,

· Staff surveys,

· Exit interviews and data from whistleblowing and speak up lines [3], as well as

· Market research, polling and press analysis.

Where there is dissonance between the culture you expect to see, and what is actually occurring, find the cause and reiterate the culture process to remedy either the outcome or the dissonance between what the firm says it values and the values it is demonstrating.

There is a question about whether a firm should report publicly on some of these issues, as a constituent part of their integrated reporting.  It would be a brave company that would report publicly before their culture was firmly ingrained, as pulling such reporting would be greeted with the utmost cynicism by the public.

Conclusion

Financial institutions that best serve their clients will ultimately best serve their shareholders.  When they have a culture and purpose that aligns with that of their stakeholders they will regain a license to operate from the public.  In time, this could even become a virtuous circle where good behaviours keep customers and shareholders happy, improving results while reducing a firm's cost of capital.  But this will take time.


[2] http://blogs.hbr.org/2014/05/the-best-teams-hold-themselves-accountable/

[3] 'Ethics, Risk and Governance' by Peter Montagnon.  Published by the Institute of Business Ethics, July 2014.

 

About this author

Barbara Ridpath is the Director of St Paul's Institute.


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Disclaimer

The opinions expressed in this article are those of the author, and do not necessarily represent the views of St Paul's Institute or St Paul's Cathedral.