Is regulation fighting against your good culture?

Posted: 9th May 2016

To me, culture is everything. It's not just a contributing factor to the success of a business, it is THE contributing factor. It's the invisible 'stuff' that glues an organisation together, or “how we get things done around here”. Culture drives performance and culture beats strategy, every day of the week.

If you’re presiding over high level decisions in your firm, the recently introduced Senior Managers Regime (SMR/SIMR) will be high on your agenda. It is undoubtedly acting to propagate a culture of accountability in financial services, and at the same time, serving to protect customers against detriment.

However, despite the positive effects it is having, there is now more at stake for those making the decisions within firms. The concept of personal accountability will indeed serve to tackle some of the behaviours of the past, but will it work against the culture of collaboration your firm has worked hard to instil?

Arising from my conversations with CEOs in financial services recently is the concern that the regime may have unintended consequences on existing good cultural behaviours. Certainly in Huntswood’s culture, collaborative working, collective decision making, bringing colleagues 'on the journey', virtual teams and matrix structures, and 'no blame' decision making are all encouraged and welcomed. These all feel like appropriate and solid behaviours for any firm to encourage.

But with SMR seeking to improve professional standards by ensuring individual accountability, the challenge for business leaders is how to ensure their internal culture remains conducive to their collaborative approach to doing business, and the high level of innovation this collaboration brings.

The allusion here, of course, is that with more at stake for individuals under SMR, individuals may avoid making decisions in the fear that it could ultimately come back to haunt them.

With this in mind, how do we make sure compliance in our firms is cultural and not transactional, and incorporates the spirit of SMR without stifling what’s great about our organisations?

Of course, in their development of the regime, the FCA will have focused (rightly) on those firms who exhibited the negative cultures that led to the current state and reputation of the financial services industry. However, all firms are different, and some are now having to consider whether their current collaborative culture needs to be adapted to fit the new world.

It may be too soon to tell whether the unintended consequences will have significantly detrimental effects on firms with established and positive cultures, but firms should now be considering how they might be affected. Is there anything you can do as a senior leader to help maintain the level of collaboration within your firm?

I spoke last month about some organisations’ board packs averaging over 400 pages, and asked whether presenting the information differently (through workshops, seminars or discussion groups, for example) could make the implications and resultant actions of changing regulation more tangible at this level. To add to that this month; if the causes, effects and implications of regulation were made more explicit in board level discussions, could you as a senior decision maker (and accountable under SMR) feel more comfortable about whether your firm’s products and processes are delivering good outcomes?

I don’t think it is counterintuitive to say, in the case of illustrating the real level of regulatory risk your firm is exposed to in order to make the right strategic decisions, that less is more. Compliance experts within the firm should distil regulatory information in a way that effectively conveys to the board the regulatory obligations of the firm, and any shortcomings in current processes and procedures. Consider whether regulatory expertise in your firm is sufficient to do this, and also how you call upon this expertise for opinion.

The long and short of the message is that the board can’t be everywhere in a firm – they must of course place a level of trust on those overseeing the day-to-day operation and providing MI. I’d contend that it is through ensuring the right reporting processes are in place that board members can feel assured that their firm’s activity is not unduly exposing themselves or their customers to risk or detriment. I’d also contend that it’s down to the board to establish and enforce a risk-based approach to discussing regulation, ultimately ensuring the right decisions are reached for consumers and the wider firm, and that  management information is brought to life and doesn’t come in the form of an impenetrable, 400 page document.

The CEOs I have spoken to are often justifiably proud of their firms’ culture, with others aware that there is work to be done. SMR offers organisations the chance to reaffirm their values and behaviours and make any necessary tweaks but, from a CEO’s perspective, we must not compromise on the qualities that bind great organisations. It would be a real shame if SMR were to drive any of them out of the door, and we as decision makers have to ensure we are interacting with the business functions providing us with key information in the right way in order to avoid issues making their way into the customer base in the long term.

The strength of your vision for the culture of your firm will be a key asset in applying the letter and the spirit of SMR while ensuring the great things about your firm’s culture stick.