Banking culture. The root of all evil!

Skull thing.jpgEven if it were true is that the most helpful construct for addressing the issue? Blaming “it” on culture is a classic system 1 response (see Thinking fast and slow by Daniel Kahneman for definition). It sounds true, an alluring expression of the root cause of the problem. But is it?

Let’s assume that it is true for a moment. How should the Board respond to the ASIC challenge?

A culture problem warrants a culture response.

To respond the Board insists on a new corporate culture:

  1. A target culture is defined incorporating more system 1 words such as customer centric, agile, compliant, trustworthy, and courageous just to name a few.
  2. This is published with internal marketing and communications. Beautiful posters are up everywhere and executives are out in force like politicians espousing the merits, aspirations and expectations of the new culture.
  3. Scorecards and bonuses are linked to the new culture. The carrot and stick are in place.
  4. Performance is measured using employee surveys. Reports are incorporated into board papers.

Congratulations you have new culture! The Board has met it obligations.

Really?! A more in depth analysis of what is happening needs to be undertaken.

What is the purpose of enterprise including banks and how do they function?

  • The enterprise must fulfil a customer need at a price the customer is willing to pay. Even a monopoly must achieve this or face the threat of a potential competitor.
  • The enterprise must be efficient and effective. Without this, in time, they will be overtaken by a more competent competitor.
  • The enterprise must conduct its affairs within the law (as a minimum in the short term and within the expectations of society in the long term).

The modern enterprise achieves these requirements by taking a goal orientated approach. This means setting informed business targets and going about achieving those targets, often with bonuses at risk (but not necessarily so). By its very nature goal orientation creates tension. Without tension then the enterprise is baking in inefficiency and ineffectiveness and will ultimately fall.

Individuals have the potential to respond differently to that tension and sometimes that response is inappropriate for the situation. This is where the core of the issue lives.

An inappropriate response could occur because:

  1. The individual or group is overly invested in that particular outcome.
  2. In their mind the goal is beyond their reach through conducting business appropriately.
  3. The risk/reward profile is such that they are prepared to cross the line.
  4. Their personal values accept the inappropriate behaviour as “their normal”
  5. The individual feels threatened and is acting under duress.

In the end we can chose to lower the “performance tension” to such a level that enables everyone to exceed it. This has serious long term performance ramifications for the existence of the enterprise and is not in the best interest of society.

The better alternative, in my mind, is to deal with the underlying conditions through better quality management, coaching, and better selection of individuals for the job. Above all the enterprise should operate with full transparency and appropriate segregation of duties to ensure that failures are identified quickly and corrective action taken to minimise the damage.

How is that a culture problem?!

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Banking culture. The root of all evil!