The challenge of managing ethical behaviour in banking

Jun 16
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Between 2008 and 2015 the banking industry as a whole has been fined nearly $250 billion for unethical and fraudulent activities. While there are a small number of individuals who perpetrate unethical behavior and wrongdoing, their actions have considerable financial and legal ramifications and have negatively impacted employee morale as well as the trust of regulators and the public. In fact, most global banks are trading well below breakup value, signaling a significant lack of investor optimism in positive change.

One global institution, Citibank, states on its website and in its ethics document that “conducting business responsibly and ethically is critical to protecting our reputation for integrity and maintaining our competitive advantage” and is therefore augmenting its existing Citi Code of Conduct with an additional company-wide top-down communications, staffing and education campaign of “Zero Tolerance”. Other banks are following suit with new policies and internal procedures in an attempt to reshape culture and eliminate unethical behaviours.

Will policies bring about sustainable change?

While such approaches are well intentioned, the real question is: “will they bring about positive and sustainable behaviour change?” We believe this is unlikely since there are already numerous internal compliance and business safeguards in place, as well as training programs, yet still the issue of unethical and overly risky behaviour remains.

While we do not know the internal culture and workings of the major banks and financial institutions as well as those leading and working inside the organisation, we do believe, based on several decades of successful work on large scale culture change in numerous industries, that developing a culture of responsible finance and instilling ethical behaviours requires a multifaceted approach and must include the thinking, tools and methodologies of behaviour change at scale.

Corporate Culture as a Business Risk

A 2009 study of risk managers stated that “most risk professionals – on the whole a highly analytical, data rational group – believe the banking crisis was caused not so much by technical failures as by failures in organisational culture and ethics.” (RiskMinds 2009 Risk Managers’ Survey; Childress, 2013).

In a 2010 presentation to the Society of Actuaries’ Risk Symposium on the topic of “Creating a Risk Management Culture”, Norman Marks and Michael Rasmussen stated: “while some risk-taking will be governed by rules and controls, much is governed directly by culture – where often rules and controls are not effective, fail, or are ignored.”

Traditional Culture Change Approaches

To reshape their current corporate culture, numerous global banking groups are attacking the problem with highly traditional approaches. Some have publicly revised their Corporate Values and are using internal cascading communications to reeducate their employees on the importance of ethical behaviour. Others use their CEO and key senior executives in extensive “Town Hall” meetings with employees to urge better behaviour. Still others are reviewing and revising compensation and even placing a percentage of annual performance pay on “living the culture”. From the outside, government regulators and other bodies have been promoting tougher oversight and additional regulation as the solution.

While all these are part of the solution, most of these attempts tend to ignore the real fact that culture change is the replacement of one set of accepted and frequent work behaviours with another. Real culture change is behaviour change.

John R. Childress will be speaking on ‘Reshaping culture in financial services by linking culture to the business’ at the Culture & Conduct in Financial Services conference this October. Book your place by July 22nd to save $600 on ticket prices.

Culture & Conduct in Financial Services

Submitted by John R. Childress

John R. Childress

John R. Childress is Senior Executive Advisor on Leadership Culture and Strategy Execution Issues in both the UK and USA.

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