4. CULTURE - DEFINITION & CONDITIONS
Culture
• Culture is the unique dominant pattern of
shared beliefs, assumptions, values, and norms
that shape the socialization, symbols, language
and practices of a group of people.
• “Culture is the soul of the organization — the
beliefs and values and how they are manifested”.
• “Think of the structure as the skeleton, flesh
and blood and culture as the soul that holds the
thing together and gives it life force.”
Necessary Conditions
i. shared by the vast majority of members of a group or society;
ii. passed on from generation to generation;
iii. shapes behaviour and perceptions;
iv. helps members solve problems
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5. CULTURE – BENEFITS & DRAWBACKS
Culture’s Five Basic Functions
• Defines Boundaries
• Conveys a Sense of Identity
• Generates Commitment Beyond Oneself
• Enhances Social Stability
• Sense-making and Control Mechanism
Culture has Limitations
• Barrier to Change
o Culture is slow to change
• Barrier to Diversity
o Culture seeks to minimise diversity
o Can embed prevalent bias and prejudice
• Barrier to Acquisitions and Mergers
o Most mergers fail due to cultural incompatibility
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6. CULTURE IS NOT VISIBLE
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Observable
elements of
culture
Un-observable
elements of
culture
• Practices
• Language
• Symbols
• Stories
• Norms
• Values
• Assumptions
Culture: Hard to Build, Easy to Destroy - Or?
7. 1st Step: Recognise Your Culture(s): the core values or dominant (primary) values
which are accepted throughout the organization.
• Dominant culture: expresses the core values that are shared by a majority of the
organisation’s members
• Subcultures: tend to develop in large organizations to reflect common problems,
situations, or experiences
2nd Step: Plan to Change Your Culture
• Top-management act as role models and set the tone through their behaviour
• Create new stories, symbols and rituals to replace those currently in vogue
• Select, promote and support employees who espouse the new values
• Redesign socialization processes to align with the new values
• Change the reward system to encourage acceptance of a new set of values
• Replace unwritten norms with formal rules and regulations that are tightly enforced
• Shake up current subcultures through transfers, job rotation, and/or terminations
• Get peer group consensus through the creation of a climate with a high level of trust
CULTURAL CHANGE
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9. REGULATORY FOCUS ON CULTURE
“Culture remains a key driver of significant risks in every sector and
the root cause of high-profile and significant failings. It impacts on individual
behaviours which in turn affect day-to-day decisions and practices in the firms we
regulate. Culture is therefore both a driver, and potential mitigator, of conduct risk.
“We continue to focus on the culture within financial firms, and will hold
management to account where cultural issues lead to internal controls that
fail to promote and support the right outcomes for consumers and the market”
“Boards have a critical role in setting the ‘tone from the top’. We expect
them to take responsibility for their firms’ culture, ensure it remains high on firms’
agendas and that this tone is replicated throughout the firm”.
“Senior Managers need to ensure that their firm’s business processes,
people and other drivers of culture support and reinforce the
culture they want to embed”.
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10. “We define culture as the mechanism that delivers the values and behaviours that shape
conduct and contribute to creating trust in banks and a positive reputation for
banks among key stakeholders, both internal and external.”
“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.”
“Piecemeal approaches are not good enough. Aspirational leadership statements by bankers
must be matched by effective and disciplined implementation programs.”
BANKING CONDUCT AND CULTURE
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11. The What:
Banks should specify their cultural aspirations through a
robust set of principles and fashion mechanisms that
deliver high standards of values and associated conduct
consistent with the firm’s purpose and broader role in society.
The How:
Banks should work to fully embed the desired culture
through ongoing monitoring and perseverance, drawn from
four key areas:
1. senior accountability and governance,
2. performance management and incentives,
3. staff development and promotion, and
4. an effective three lines of defence
CULTURAL FOUNDATIONS
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12. REFORMING CULTURE
“Reforming the culture of banking is necessary to support
the long-term health of our financial system. Without good
culture shaped by appropriate incentives, we can’t have the
consistent good conduct we should expect and deserve”.
“We cannot continue on the present course. We know this,
the public knows this and so do many in the industry.
Continuing instances of misconduct highlight the need for
attention to this issue and raise the question of whether the
largest firms are “too big to manage.” I remain convinced,
however, that when the will is there, meaningful
improvement is possible”.
William C. Dudley, President, President and CEO of
the Federal Reserve Bank of New York
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13. QUESTIONS FOR THE BOARD
• How is the board modelling the firm’s desired behaviours and values when interacting with
management and staff?
• How does the board’s actions and behaviours support and advance the firm’s desired culture?
• Has the culture of the firm been independently assessed?
• What were the results of that assessment?
• Is culture a regular feature on the board and audit committee agenda?
• Does the board hear from key employees, such as business line managers, to obtain insights into the
company’s culture, subcultures and team-specific issues?
• Does the board engage with external stakeholders such as customers, suppliers and regulators?
• Do the firm’s stated values match the actual experiences of customers, employees, suppliers?
• Does monitoring/reporting captures data on key indicators including employee feedback, customer
complaints, employee training on culture issues?
• Is data analytics used to gain insights on culture?
• Is the information from internal and external audits being fully utilised (since these generally touch
many parts of the firm and are exposed to a variety of cultural indicators)?
“The most critical decisions are generally made by the board, and what the board is and isn’t
interested in has ramifications through an organisation”.
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14. ROLE OF SENIOR MANAGEMENT
“The senior management is responsible for creating a culture where everyone has
ownership and responsibility for doing the right thing”.
The Senior Management Team (SMT) should ask:
• Do employees know the firm’s values, and what they are expected to do in their day-to-day work to
ensure that the firm is ‘living’ these values?
• Are employees given clear guidelines about what is expected of them, including training about what
to do if they come across an issue or need to make a decision that is not clear to them?
• Does SMT make employees aware of any learning's where poor conduct has been identified?
• Is the expected conduct and behaviour embedded in the firm’s policies, procedures and systems?
SMT should pay particular attention to:
• Recruitment, training and rewards
• Clear expectations of behaviour
• Communication and whistleblowing
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“Tone from the top means ensuring the values are cascaded
down and understood throughout the firm so that the ‘tone
from the top’ is reflected in the ‘mood in the middle’ and
not lost as white noise”.
Culture: Hard to Build, Easy to Destroy - Or?
15. POOR CULTURE = CONDUCT RISK
Conduct: “Strategy or business
model, causes or has the potential to
cause, customer detriment and/or
negatively impact market integrity”.
Conduct Risk is a key area of focus for
regulators everywhere with the UK,
Australia and the USA leading the charge
The focus is on how the business is
run, rather than how it is controlled.
Europe increasingly sees Conduct Risk as a Systemic Banking Risk
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16. CONDUCT RISK IS NOT …
Firms shouldn’t think of conduct as:
• Defined by Regulators: each firm must
determine what it means
• Defined in Terms of Appetite: by
definition it must be “zero”
• Values Statements: must be hard-edged
and embedded in the business
• “Tick Box” Compliance: “soft risks”
e.g. behaviours, choices and values
• Not limited to Product Mis-selling:
competition abuse, IT, cybersecurity etc.
• Customer Satisfaction & Experience:
is not the same as being treated fairly
• Preventing Innovation: its about trust,
risk management and accountability
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Instead firms should focus on:
17. CULTURE = OWNERSHIP OF OUTCOMES
Senior Managers are now accountable for culture and good customer outcomes:
• Decisions and conduct that falls within their areas of responsibility: the
FCA has found cases where the specifics of senior management responsibilities
were not clear or firms had limited the scope of responsibility to particular
activities by focusing on how the relevant senior manager discharged his or her
responsibilities, rather than what he or she was actually responsible for. Neither
situation is acceptable to the regulator.
• Ensuring reasonable steps are taken for the decisions made by
individuals in their areas are appropriate: the FCA has found firms seeking
to limit the responsibility of the overall senior manager of an area by allocating
some of the responsibility to a subordinate. The FCA is clear that this will not
be acceptable. "If you delegate leadership and decision making, you are still accountable for
oversight of those managers".
• Ensuring that individuals working at all levels in areas of responsibility
meet appropriate standards of conduct and competence. "In view of the
importance of standards to the conduct culture of the industry, FCA supervisors will be
paying close attention to how senior managers discharge this responsibility".
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19. VISION AND VALUES
Vision: “We want to satisfy our customers’ financial needs and help them succeed financially.”
Values: “Our values should guide every conversation, decision, and interaction. Our values should anchor every product
and service we provide and every channel we operate.”
1. People as a competitive advantage
2. Ethics
3. What’s right for customers
4. Diversity and inclusion
5. Leadership
Brand
• Relationships that last a lifetime
• Expertise and guidance to help our customers make confident decisions
• Going the extra mile to do what’s right
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22. SALES PRACTICES SETTLEMENT
• In September 2016, Wells Fargo reached agreements with the Consumer Financial Protection
Bureau (CFPB), the Office of the Comptroller of the Currency (OCC) and the City of Los Angeles
regarding its sales practices.
• The amount of the settlement was $185 million:
o CFPB = $100 million
o City of Los Angeles = $50 million
o OCC = $35 million
• As part of an extensive third party review commissioned by Wells Fargo covering activity back to
2011, over 82 million deposit accounts and nearly 11 million credit card accounts were examined:
o Roughly 2% of the accounts reviewed (1.5 million deposit accounts and 565k credit card
accounts) were identified as accounts that may not have been authorized, i.e., Bank could not
rule out the possibility that an account was unauthorized and therefore included that account
in a further review to determine any fees to refund
o Approximately 115k of these accounts, or 0.12%, of the 93 million accounts examined (100k
deposit accounts and 15k credit card accounts), had incurred a fee and the Bank has refunded
$2.6 million to those customers (an average of $25 per account)
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23. CEO RESIGNS & ACTION TAKEN
• Extensive review (via a third party consulting firm) going back to 2011; the review included
consumer and small business retail banking deposit accounts and unsecured credit cards opened
during the period reviewed.
• Refunded $2.6 million to customers for any fees associated with products customers received that
they may not have requested
• Disciplinary actions, including terminations of 5,300 managers and team members
• Investments in enhanced team-member training, monitoring and controls including:
o removed product sales goals in the retail banking business, effective 1/10/2016
o instituted mystery shopper program with a targeted 15,000-20,000 annual branch visits
• Strengthened performance measures that are tied to customer satisfaction, loyalty and ethics
• Instituted automated confirmation emails to customers within one hour of opening any deposit
account; the Bank is also sending an application acknowledgement and decision status letter after
processing an application for a credit card
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Press Headlines
24. BANK CEO HELD TO ACCOUNT
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https://www.youtube.com/watch?v=xJhkX74D10M
26. LESSONS LEARNT
• Continuity. To deliver an appropriate culture, banks need to ensure there is a continuity in values.
Engaging in constant culture change, a refreshing of values and ethical rebooting programmes
might make nice headlines, but are likely to be counter-productive.
• Consistency. An underlying culture needs to be consistently reinforced through a wide range of
routines, rituals, artefacts, symbols and architecture in the organization. It also needs to be
consistent with the business model. Banks need to ask how all elements of employee experience
might reinforce or detract from a particular culture.
• Ensuring accountability. Banks have placed great emphasis on senior leadership driving cultural
changes, but there were some concerns among stakeholders that senior people in banks had not
been held accountable in the past. At a minimum, Chairs and CEOs need to be demonstrably
accountable for culture.
• Tone from the top is not enough. Most banks have the right tone from the top. However, some
stakeholders are concerned about messages getting lost in the middle. Managers need to constantly
ask whether their culture change programmes are making the experience of front line staff better
or worse.
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27. • Improve the experience of front line workers. The way front line employees are managed has a
direct impact on the way customers are treated. It also has a big impact on how staff make
decisions when faced with an ethical dilemma. Employees need to be supported and engaged if
they are to implement this new culture.
• Pick up on small problems before they become big problems. Many of the best banks have
systems which allow staff throughout the organization to routinely log small problems. Similarly,
whistle-blowers who raise serious concerns in banks should be protected and should not fear
reprimand or reprisals as a result of their actions.
• Voluntarily admit problems and make up for them. Public trust in the banking sector remains
low. Part of this is the widespread perception that banks will only communicate failures and make
up for them when they are under pressure from the regulator. Banks need to do more to highlight
the top issues which raise customer complaints and explain what actions they are taking to tackle
the root causes of these complaints.
• Shareholders shouldn’t just want short term returns. Senior management’s duty towards
shareholders is not to maximise shareholder value, but provide sustainable value for shareholders
through doing the right thing.
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LESSONS LEARNT
28. • A range of metrics is required. Use metrics to capture input, process and output aspects;
measure cultural processes using metrics which capture how culture is lived and its impact on
customers and other stakeholders.
• Measuring employee attitudes is not enough. Measuring staff attitudes using annual employee
surveys is an important annual indicator, but it is unlikely to give banks a detailed understanding of
how culture works in their firms. More detailed approaches should look at behavioural aspects of
culture.
• Ensure that sales metrics aren’t simply relabelled. In some cases sales targets unofficially live
under a different name (usually targets for identifying customer needs) and become the focus of
gaming. Clarity is needed to root out any vestiges of an aggressive sales culture.
• Generational change and leadership development are needed. Changing the underlying
assumptions about banking will take time. Recognise the importance of leadership development in
changing the culture, not only at the top, but throughout the organization.
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LESSONS LEARNT
29. • Focus on substance, not just image. We know that culture change tends to fall flat when surface
level changes clash with deeply held assumptions in the organization. To make culture change work,
banks need to ensure that surface level changes such as newly espoused values, new branch design,
new rituals, and protocols are linked with underlying values. For genuine culture change to occur, it
is vital people do the right thing, even when no one is looking!
• Overhaul product design processes and consider how they generate revenue. Failures in
product design processes have been at the heart of numerous mis-selling scandals. Banks need to
overhaul their product design processes to focus on designing products which help people manage
their money and achieve their financial goals.
• Reconnect with the purpose of banking. This does not just involve making money for
shareholders. It involves considering the wider social and economic purpose of banks. Banks need
to clearly answer the question: why do we exist? Having a clear response to this question, which
people throughout the organization buy into, is necessary in order to build a more sustainable
culture and rekindle trust.
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LESSONS LEARNT
30. Tony Moroney | Managing Director
Berkeley Research Group, LLC
6 New Street Square, 15th Floor | London, EC4A 3BF
D +44 (0) 20 3597 5167 | M +353 87 2556947 tmoroney@thinkbrg.com | thinkbrg.com
The views and opinions expressed are those of the author and do not necessarily reflect the opinions, position, or policy of Berkeley
Research Group, LLC or its other employees, affiliates and clients. All graphs are illustrative only and should not be relied on.
THANK YOU
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