Four key questions for boards as they assess their culture strategy

In the decade following the crisis, the New York Federal Reserve Bank estimates, banks in the US and across Europe paid in the region of USD342 billion in fines and settlements related to misconduct and compliance failures, of which about USD137 billion could be attributed to culture related issues.

Culture and conduct related incidents come at a high cost to firms, resulting in hefty fines and irreparable damage to their reputation. It is imperative for the boards of FS organisations to ensure that they have a robust culture in their business. They need to be secure in the knowledge that core values are being actively promoted, managed and consistently upheld at every level. The risks associated with neglecting culture, and presuming values are understood and adopted, are too severe to ignore.

So, how can senior leaders ensure that their culture strategy and their attitude to values is on the right track? We believe there are four key questions boards should consider.

Is the firm's culture strategy being effectively implemented?

Boards have a responsibility to oversee culture within their organisations. After approving a culture strategy that should align with their business strategy, and the values and behaviours that the organisation sets and expects, the board must ensure that culture remains a top priority. To achieve this, they should hold the executive team accountable for executing actions that align with the stated strategic cultural objectives.

However, it's crucial for financial services organisations to have the right culture strategy in place. Often, these strategies are cobbled together in response to incidents rather than being well-designed risk management frameworks aimed at prevention. The culture strategy should focus on the ultimate goal: embedding the values and purpose of the business in every activity, aspect and employee.

Once the strategy is in place, other questions can help determine whether the culture is being effectively implemented:

• Are the strategy's goals and plans being communicated and put into action?
• Is there oversight and regular review of the culture strategy's progress?
• What measures can be taken to engage employees at all levels in shaping and embracing the culture?
• Are supervisors and managers equipped with the necessary skills and expertise to ensure that the desired culture permeates throughout their teams?

How is the impact and effectiveness of the firm's culture strategy being measured?

High-performing financial services firms do not just track the actions they take to shape their culture strategy. They measure the impact of their culture on every aspect of performance and reputation across their whole business. They use a mix of qualitative and quantitative data and insights to identify and address any gaps or risks in their culture alignment. This means measuring and reporting on the key indicators and metrics that show how well their culture and change efforts supports their values, behaviours, and expectations.

To delve deeper into the metrics, boards need to consider:

• What kind of information and analysis is needed to assess the effectiveness of the culture strategy?
• How can they interpret these metrics to prove that the organisation's culture is consistent with its values, behaviours, and expectations?
• How can they analyse these metrics to identify ways to refine the culture strategy if it is not achieving the intended outcomes?
• Is the board getting enough and timely information and data on culture to be able to question management and staff and detect potential problems?

Is the tone from the top cascading down to influence behaviours at every level?

Culture change begins at the top, but it's essential to define what constitutes 'the top.' Most behavioural cues come from direct managers we interact with every day.

Even if you change culture policies, procedures and ways of communicating that with employees, genuine transformation and evolving the dynamics of your firm's culture will not happen if you don't address the role and responsibility of leadership at every level in setting and living those values.

• Is it clear across all levels of the business what good behaviour looks like?
• Do employees understand how the values of the business translate to their roles and responsibilities?
• Are there leaders within the business who are empowered to champion positive behaviours and culture?
• What can be done to engage staff at all levels in shaping culture?
• How well do board members and senior leaders actively promoting the desired culture and values throughout the business?

For most firms, the tone from the very top tends to be very good. CEOs have very clear non-business responsibilities and a definitive requirement to project them outwards. They have to be present on culture, be DE&I champions, and be the talisman of the organisation.

The levels below are where tone often fails to cascade. They are more traditional management role, with less social and stakeholder expectation. There, the ownership, accountability and responsibility CEOs feel is not sensed so keenly. That is the point at which the importance of culture must be made clear.

One way to do that is to make everyone accountable for fostering a positive culture. Employees are the organisation. Everyone can’t be the CEO, but everyone owns the success of the business. Every member of staff, regardless of their role, should be incentivised to reflect the organization's culture, model the expected behaviour, and live it daily.

How is a sense of trust being promoted in the business?

Combined with this approach to tone from the top, there are other factors that influence the trust employees have in their employer. Engagement is the keystone of a healthy culture, but it must be continuous and work both ways.

Building trust between senior leadership and employees requires a commitment to two-way communication. Without it, effective engagement and trust-building become challenging. This trust is crucial for the long-term maintenance of a positive culture. Failure to build trust can result in disengagement, reluctance to report concerns or problems, and a gradual erosion of the culture.

Effective engagement and building trust are about listening, reflecting, planning, communicating and delivering. Authentic leaders can play a crucial role by being transparent, accountable, and by inspiring and empowering their followers. Authentic leadership showcases the human side of management, demonstrating vulnerability, acknowledging mistakes, being open, responsive, and actively listening. This approach builds trust and contributes to the success of the culture strategy.

In some cases, organisations have successfully transformed their culture through organisation-wide consultation processes. People on the front line have valuable insights into the problems, and how to fix them. By involving them in defining values and having management align them with the organisation's strategy, collective leadership and ownership can be established.

Failure to engage employees and build trust may lead to a culture strategy that is doomed to fail, based on assumptions rather than informed decisions.

The key to good culture strategy

To shape and sustain a culture strategy that supports their goals and values, boards of financial services organisations must constantly challenge themselves with these four questions. By putting their strategy into action, tracking its outcomes, setting the tone from the top, and building trust, boards can drive positive cultural change and reduce the potential for costly and damaging incidents.

This article was first published in The Banker on October 24, 2023.