Regulatory measures and sanctions alone can’t deliver healthy, functioning banking sector

Proposals published today by the Parliamentary Commission on Banking Standards to change banking for good, such as deferring bonus payments for as long as 10 years and jailing senior bankers for reckless misconduct, are welcome and necessary, but insufficient in themselves to change banking culture.

This is the view of the Chartered Institute of Personnel and Development which highlights the need for improved leadership, from executive board to the frontline, as well as a greater focus on training and development and more opportunities for staff to be consulted if culture really is to change.

This month’s CIPD report, Rebuilding Trust in the City, based on a survey of 1,000 employees working in the sector found:

• Despite the work of banks to reform pay practices, two thirds of bankers believe that some people in their organisation are still rewarded in a way that incentivises inappropriate behaviour, highlighting the need to reform bonuses that can reward excessive risk taking.
• Three in ten employees think senior bankers should be imprisoned where there is evidence of gross misconduct or negligence leading to substantial failure, for example a tax payer bailout.
• However, only four in ten respondents said there has been any initiative led by senior executives to change culture in the organisation over the last 12 months, and just 43% think the culture in their organisation has become more customer focused.
• When asked what changes would be most effective in changing culture, 41% of banking employees agree regulatory reform was important, however 38% cited enhanced whistle blowing protection for people who challenge when they see something is not right and 36% said greater consultation and engagement with staff.
• A third of respondents, rising to 42% of senior managers said different leadership at board level would be most effective in changing their bank’s culture.

Peter Cheese, CIPD Chief Executive, said: “The most high profile of the proposals to radically reform accountability in banking, from the deferral of bonuses right up to potential criminal sanctions for reckless behaviour, may well be necessary, but they are far from sufficient.

“The core of the problem is a failure of culture and lack of accountability, entwined with a decline of trust in leaders that pre-dated the crash, but has been hugely exacerbated by it.  These problems are far from unique to the banking sector, a point clearly illustrated by the coincidental publication today of a report into the failings of the Care Quality Commission.

“The Banking Commission report acknowledges that profound cultural change will take time and effort from leaders over many years. The Commission’s recommended replacement of the Approved Persons Regime with a new Senior Persons Regime would undoubtedly focus minds and improve accountability.  However, the simple truth is that all the regulatory measures and sanctions in the world cannot alone achieve a healthy, functioning banking sector.  As the report says ‘Unless measures are taken to ensure that the intentions of those at the top are reflected in behaviour at all employee levels, fine words from the post-crisis new guard will do little to alter the fundamental nature of the organisations they run’.

“Banks need to re-evaluate their core purpose and the values which should define their behavioural expectations and norms. A key part of this is to re-consider their longer term duty to customers, shareholders and the wider stakeholders they impact, including the communities in which they work. Employees need to be able to understand and relate to the purpose and values at every level. This needs to be reinforced through how leaders and managers behave on a daily basis and how they are recruited, managed, developed and promoted. If we define corporate values in practical and meaningful ways, we can define organisational cultures that are truly values-driven and which are lived, breathed and consistently reinforced through actions and behaviours day-in-day out, from top to bottom.

“HR has to reflect on its part in what’s gone wrong in the banking sector, and step up to the crucial role we should play in understanding corporate culture, and in measuring, incentivising and promoting actions and behaviours that will make sure that we rebuild trust in the sector. It is good to see that there are now real programs of change taking shape in many of the financial institutions to recognise these issues, and broader initiatives such as the City Values Forum led by the Lord Mayor to develop wider frameworks and standards.”

“The Commission rightly shines a light on the role pay and incentives have in contributing to banking culture. Employers in the sector need to make it clearer across the workforce how people at different levels are rewarded and what for, as well as making sure that rewards are proportionate to individual and long-term organisational performance.”

On the role of whistle-blowing policies, Peter Cheese added:
“We welcome the report’s section on ‘Driving out fear’.  The Commission is right about the importance of whistleblowing procedures that employees can have confidence in using, but also very right about the parallel importance of cultures in which employees are actively encouraged to raise concerns they have about products or practices long before whistleblowing procedures become necessary. These are also issues of culture and leadership, and we welcome the Commission’s recommendation that there should be board level accountability for this aspect of a real culture of responsibility within banks.”

The CIPD also welcomes the focus of the report on embedding professional standards, and is already working with the City Values Forum and City HR Association to promote training programmes, guidance and tools to support effective culture change.

http://www.cipd.co.uk/pressoffice/press-releases/changing-banking-for-good-all-about-culture-190613.aspx