Pinning down company culture is a leadership responsibility

by Peter Richardson, Proviti UK

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17 Aug 2012

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IN THE WAKE of the events that have ripped through the banking sector, it is time for the industry to take stock of the pervading cultures that drive some individuals and teams to disregard rules and regulations in favour of practices that undermine the moral obligations they have to customers and investors.

The rules, regulations, processes, governance and reporting may be in place to demonstrate to regulators, amongst others, that management is discharging its responsibilities; however, it is clear that following procedures is not always embedded within the fabric of our banking institutions.

It is the responsibility of leaders to set the tone as that defines how their employees should act and behave. Even if the teams involved in the latest round of inappropriate business practices were able to show evidence that their own mandatory responsibilities were adhered to, they would merely have achieved a "tick-in-the-box". More important is the spirit in which those rules and regulations were drafted and designed, and this speaks to the culture within those teams and their understanding and appreciation of their moral duties.

Culture is difficult to define. It manifests itself in many ways throughout any organisation, but what you see, hear and perceive as you walk around a business is not necessarily an accurate reflection of the actual drivers of the culture. What truly drives the behaviours of employees on a day-to-day basis are the basic underlying assumptions that are often hidden from view; the behaviours not everybody sees, but which are a pervasive influence on "the way that we do things around here".

The more obvious elements or "artefacts" – which are most easily observed and lie on the surface of the organisation – include structures and processes, even rules and regulations. Sitting behind these are the belief systems and values which are espoused to be those of the organisation, but even these do not give the most accurate reflection of the reality of the organisational culture.

To truly understand the behaviours that employees demonstrate, we must examine the basic underlying motivations. These unconscious belief systems and values are those that influence the way in which a company's employees go about their day to day activities. The current issues in financial services demonstrate that these underlying beliefs are where institutions must focus their attention as they begin to address the cultural and behavioural issues now surfacing.

The challenge facing leaders in any organisation is how to monitor the overall organisational culture and to be aware of the sub-cultures that exist and how these can influence the execution of business practices. In some instances, these sub-cultures manifest more extreme behaviours in response to organisational policies such as reward and incentive programmes.

If the general assumption is that, for example, "adherence to rules and regulations is a chore", this is likely to result in employees simply ignoring those rules or merely paying lip service to them. If you then add in, for example, a poorly designed incentive scheme with inadequate performance management, then the casual indifference shown by most employees becomes active circumvention by a minority as they strive to achieve goals and targets and reap the associated rewards. If the incentive scheme motivates some employees to act or choose not to act inappropriately in specific situations, the "active circumvention" is exacerbated to the point where enterprise value is placed at risk.

All told, we are left with the nagging question of how the organisation reduces the risk of inappropriate behaviour to an acceptable level. While such behaviour cannot be eliminated, the answer to the question ultimately lies with aligning the interests of individual employees with the interests of the organisation and its key stakeholders. This alignment is not easy to achieve.

Where attributes of culture are out of line with the desired end-state and shortfalls exist, leaders need to understand what is different, how it is out of balance, why it has become this way, how important the differences are, and how they should be addressed.

It is no longer enough for leaders to say that culture cannot be defined or that they cannot control "rogue" sub-cultures. By looking at both the behaviours and the processes, we can address the real issues.

Peter Richardson is managing director at consultancy Protiviti UK

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