A year ago this summer, we started thinking about how Sparknow would engage with the big topic of fixing broken banking. It started with Victoria and Sabine’s kitchen table lunch in Cambridge when we talked about how much of our careers we have spent in Financial Services and how the scapegoat status, although much deserved at times, sat uncomfortably.
photo | MeoplesMagazine
We know much of our experience and offer rests on our belief that broken structures, networks and practices can be mended, that disruption leads to new ways, and we wanted to get involved. So we did.
A year on, we’ve come a long way and this blog is a roundup of a few of the key moments that stick in our minds. The findings of our year are broad reaching but some principles stand out, specifically around the issues financial services organizations face to repair their reputations and re-think their licence to operate:
- Accept that some professions are about risk taking – you can’t take risk out of them so don’t try to do so.
- Redesign the practices and processes of the organization – encourage challenge, value the right kind of conflict, and find ways for instinctive unease and dissent to be heard the boardroom without being snuffed out.
- Embrace ambiguity and complexity – don’t try to eliminate it, work with diversity both day-to-day and in recruitment practices and performance evaluations.
- Find a way of joining up the dots – find the submerged landscapes, and hidden patterns and make sense of the weak signals.
- Try some unorthodox approaches – always in the context of a coherent whole.
- Focus on measures – treat comparison and evaluation as part of an overall process rather than just as indicators of change.
As we have focused on this area over the last year, the other things that stand out for us revolve around three themes:
As outlined by David de Cremer and Henri-Claude de Bettignies (Pragmatic Business Ethics – LBS Business Strategy Review, Issue 2):
“Awareness is a first step to changing behaviour but we also need to develop corporate cultures which foster the strengthening of people’s moral compasses, while inducing an open and trustworthy leadership that allows discussions of the grey zones we all encounter in business and how they come about”.
And from the Salz review of business practices at Barclays (Appendix B):
“In an organizational context we might understand culture as the practices and values, where practices are the acts or the way things are done and values are artefacts which are human concepts and are the judgments about the way things should be done. …‘Culture’ is a human construct that applies to collective activity. It is the social and unwritten rules with regard to how people in groups interact; the collective habits”.
Much effort across the banking sector post 2008 is focused on repairing culture, and the UK regulators are seeking specific measures to define how a positive risk culture can help safeguard customers, most notably outlined by Clive Adamson in a speech on behalf of the FCA. This is a difficult task and involves treading the tricky territory of quantifying the qualitative.
For us, the main reasons why culture matters now are:
- The regulatory environment is changing, the reputational pressures on firms are high, the demands of clients are shifting in light of the financial crisis and the pressure to balance short-term results and long-term values has intensified.
- Culture is on the radar of governments, the media and the general public in an unprecedented way, which contributes to reputational pressures and puts change in the spotlight; window dressing won’t work any more.
- Leaders need to demonstrate line of sight of their whole organization, fostering a culture of accountability and controls.
- Culture is a proxy metric for integrity and sustainable business practices. This metric is increasingly reported externally.
- Most culture change initiatives tackle the surface, not the collective depth.
We attended a debate at St Paul’s cathedral around Good Banks (The City and the Common Good series), where the Archbishop of Canterbury outlined that his view of a strong culture for banks is a self-correcting culture of participation. Shift the deeply hidden narrative layers and everything else follows.
patterns and people
A strong culture is therefore not about controls or the lack of controls, but about people’s attitudes towards them. In our practice in this area, building multiple points of view is a cornerstone for strengthening the cultural compass of an organisation and a counterpoint to a unilateral view from the top. As outlined in the Parliamentary Commissions on Banking Standards’ report “Changing Banking for Good”:
“The “three lines of defense” system for controlling risk has been adopted by many banks with the active encouragement of the regulators. It appears to have promoted a wholly misplaced sense of security. Fashionable management school theory appears to have lent undeserved credibility to some chaotic systems. Responsibilities have been blurred, accountability diluted, and officers in risk, compliance and internal audit have lacked the status to challenge front-line staff effectively. Much of the system became a box-ticking exercise whereby processes were followed, but judgement was absent. In the end, everyone loses, particularly customers”.
It’s not about the controls per se, but the conversations that put them into practice, the patterns of behaviour that emerge from day-to-day dilemmas and challenges and the recognition that discomfort can be a good, necessary thing – most of all in relation to achieving a depth of practice over a box ticking exercise. Again from the Parliamentary Commission on Banking Standards report – Changing Banking for Good:
“The corporate governance of large banks was characterised by the creation of Potemkin villages to give the appearance of effective control and oversight, without the reality”.
This is where much change effort should focus: understanding the balance of responsibilities across people and networks, building in the checks and balances, rather than focusing on a remedial values awareness campaign.
working from the evidence
People, networks and stories of positive practices can bring about the multi-faceted texture that allows a system to become self-correcting, learning, evolving, ultimately owning the responsibility for its own change and effectiveness.
We believe boards need to see and hear this angle and the research methods that underpin our thinking drive towards this outcome. Changing a culture can’t be a top down exercise only, however important the tone from the top is in setting direction. Evidence is in the detail, and insight is in looking at the evidence through new lenses.
Much is made about the need for challenge and for higher levels of challenge and debate as a cultural trait that will shape leadership in complexity. The challenge of seeing things differently also comes into play here, with organizations valuing different points of view and giving appropriate credence to the dissenting voice, to diversity, to instinct.
our journey so far
Many friends and networks have joined us, and we are thankful for the time and insights you have shared and for the joint approach we have shaped. Maybe we can say that we are now, officially, at the beginning.
Big building blocks along the way include:
- A Causal Layered Analysis event, hosted jointly with The Futures Company and Infinite Futures followed by our “Wolfson” meetings in Oxford with Wendy Schultz
- Our response to the Salz review and related thinking
- Joining our thinking with Douglas Board, Alicia Pickering, Fiona Hiscocks and Aidan Prior
- Building an approach to working from the evidence around triads, with Cognitive Edge
- Optimice’s insights into social and organisational network analysis and relationships
- Shaping our Ethical Auditing offer, to be evolved into cultural alignment as a next step
- A project underway with a global financial institution around controls and culture
- A project on quality and speak up cultures with a client in the manufacturing sector that builds on our thinking about culture, measurability and controls
- Our blog series on counter-heroism and speaking up.
And of course much talking, reading, network building, collecting and noticing along the way.