Change culture or die!–the unmistakeable message for banks

In a jargon-ridden study stuffed with technical observations and annoying acronyms, a new report from KPMG concludes the banking industry requires

…nothing less than a complete metamorphosis of business models” [1][spacer height=”20px”]

The industry needs such a transformation because the cost of bad behaviour is now life threatening. In a few short years bank profits have halved. Most of the rewards (80%) keep vanishing into the sin bin—paying off fines, litigation costs and compensation schemes. This trend seems set to continue, probably for years.[spacer height=”20px”]

To put the cost into perspective, the amount needed to handle alleged wrong doing is greater even than the money needed to cover bad loans, and there are plenty of those still around. [2]  [spacer height=”20px”]

Banks are part of society and like any business operate with an implicit “social licence.” This licence though is in danger of being cancelled. [spacer height=”20px”]

Widespread customer distrust, continuing political talk of breaking up large banks, run alongside an ever-tighter regulatory climate

…so sweeping that many industry analysts have questioned whether the overall weight of regulation poses a threat to the future of the community bank model.” Reinvention of UK banking, KPMG 2014

The need for new banking culture is hardly a revelation. The core issue is: can leaders of what many now regard as socially irresponsible institutions bring themselves to change?[spacer height=”20px”]

Will they become values-driven rather than greed-driven; abandon outdated command and control in favour of efficiency and more transparency?[spacer height=”20px”]

Changing the culture of an entire industry will never be easy nor quick. Banking is proving no exception. We see constant set-backs with depressing reversion to old habits. For example, the “business as usual” payment of large bonuses without the profits to justify such outlays. [spacer height=”20px”]

Other unproductive leadership behaviours must also change in particular the approach to compliance

I have been told by one chairman that his bank’s board spend 70% of their time talking about regulation—that can’t be right. They must have time to discuss others things like strategy.” [3]

No amount of energy and time spent on issues of compliance and regulation will ever be enough. Despite self-serving pleas for a letup in the pressure, bank leaders must reconcile themselves to a world of constantly changing regulations. [spacer height=”20px”]

One notable result of this pressure is front-line troops forage constantly to make sense of the landscape. A typical compliance officer for example, spends over one day a week–more than 10 hours–tracking and analysing regulatory developments and amending policies and procedures. Hardly the stuff of a cultural revolution.[4] [spacer height=”20px”] 

Yet another re-focus for bank leaders is on how they create staff committed to supporting ethical bank behaviour. That is behaviour that wins public trust, not attracts fines and massive social disapproval. [spacer height=”20px”]

Most banks now claim to be doing some kind of ethics training, if only to meet minimum regulatory expectations. Yet most of this training concentrates on legal and compliance issues, rather than the underlying human factors that cause a person to choose unethical behaviour. [spacer height=”20px”]

There may well be “codes of conduct” and standards for judging employee behaviour, yet there is little evidence of a determined effort to bring these to life in more than a cursory level of investment in training. [spacer height=”20px”]

The level of training associated with integrity and ethical behaviour remains unimpressive, given the scale of mal-practices now clogging up the lines of communication with regulators. Much of the effort is still founded on a command a control philosophy rather than winning genuine “buy-in” from employees—achieving ethical engagement.

Putting Ethics training on the map

Ethics training is not simply about the codes and making sure employees understand what is expected of them in the legal sense. To be effective it must be:[spacer height=”20px”]

1) Sustained–that is more than just a few hours a year which in total looks impressive but in individual terms adds up to little more than a brief, soon forgotten  message [spacer height=”20px”]2) Highly visible:  leadership actively supports the training effort, and communicates constantly why ethical actions are important [spacer height=”20px”]3) Empowering– employees helped to take action so it becomes clear there is a personal responsibility to support ethical behaviour, not just a corporate one [spacer height=”20px”]4) Shared examples–real-life cases of ethical decisions are constantly discussed and the consequences explored [spacer height=”20px”]5) On going guidance–the training shows how and where help can be obtained when an ethical dilemma arises [spacer height=”20px”]6) Strong lead from the top–supports those who speak up about ethical concerns with a systematic effort to prevent them from being bullied, or made to feel guilty for raising issues [spacer height=”20px”]7) Zero tolerance of unethical practices– positive, visible  action from senior leaders to tackle such situations and avoids “rewarding” bad behaviour just because it makes money.