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Without Reason, Culture Fails

Carol Beaumier

Recent lapses of standards and values have resulted in regulatory inquiries, enforcement actions, financial penalties, resignations and reputation blows for some of the world’s largest financial institutions. And while the financial services industry should take no comfort from this, it is by no means the only industry that has failed to live up to the expectations of its constituents. To be fair, the current headlines are just the most recent examples of corporate breakdowns, as we are reminded by this statement from the introduction to a special report in the June 2002 issue of FORTUNE, aptly titled, “Crisis of Confidence.”Carol Beaumier

“Nearly every known check on corporate behavior − moral, regulatory, you name it − seems to have fallen by the wayside.”

What is it in the culture of some organizations that allows these lapses to happen?

An organization may define its corporate culture as “the way things get done around here.”Culture drives the behavior and actions of an organization’s workforce, which, in turn, determines the degree of adherence to policies, procedures, regulations and values.

The ancient Greek philosopher Aristotle taught us that “all human actions have one or more of these seven causes: chance, nature, compulsion, habit, reason, passion and desire.” What’s important to note is that only one of these seven causes – reason – relates to logical decision-making. Having rulebooks, such as codes of conduct and other written policiesand procedures, is important, but it is not enough. Too often, organizations fail to recognize that effective corporate governance and compliance depend on managing behavioral risk – the risk that one or more people will make a decision, fail to take action, or engage in an activity that has negative consequences for the organization as a whole.

Most of us were taught “right and wrong” at an early age by our parents and teachers. Some of us were given tips by leaders for whom we have worked. A simple message to a young and up-and-coming professional along the lines of, “I never want to see this organization in a negative headline in The Wall Street Journal, so if you’re struggling with a decision, just remember that,” can have a powerful impact.

But behavioral risk isn’t just about right and wrong. It can have multiple root causes, both unintentional and intentional. It can stem from circumstances in which employees may have been provided inadequate training, or given unclear instructions, or are ineffectively supervised. It can result from the pressure that comes from time deadlines or resource restraints. It may result from poor judgment when well-intentioned individuals misinterpret expectations or requirements. And it can be driven by competitive pressures, hubris or even the challenge of “getting away with it.”

The organization’s goal is to make the case for “reason,” to encourage and support people in doing the right thing because it is the right thing for the organization. Encouragement caninvolve carrots and sticks. The reason can be in the form of a benefit: “I know that my company recognizes and rewards me for making decisions that are in the company’s best interest.” The reason can also be a punishment: “I know that my company will not tolerate my acting in a way that is detrimental to the company’s well-being or reputation.”

There are any number of lists of the characteristics or attributes of companies that have demonstrated their aptitude at managing behavioral risk and are recognized for their strong corporate cultures. Much also has been written about the intrinsic benefits of a strong corporate culture, such as the views of, respectively, former and current Harvard Business School professors, James Heskett and Earl Sasser, who asserted that “strong, adaptive cultures can foster innovation, productivity, and a sense of ownership among employees and customers. They outlast any charismatic leader,” and such a culture “creates a competitive edge that is hard to replicate.”

The keys to sustaining a strong corporate culture are fairly straightforward:
  • Leaders must set the example. A leader, as described by John Taft, the CEO of RBC Wealth Management, practices “servant leadership.” According to Taft, “It is seeing yourself as holding a type of ‘office’ in which you are equally accountable to the four primary constituencies of any business – customers, employees, shareholders, and the communities in which those customers/ employees/shareholders live and work. It is seeing your responsibility as a leader as serving in a balanced way the long-term interests of those constituencies. That is a servant-leadership approach. It doesn’t necessarily come naturally but instead is something one has to learn over time.”If the leaders of the organization don’t recognize their responsibilities to their multiple constituents or that decisions or actions are not just for today, but may have long-term consequences for one or more of these constituencies, there is no reason to expect the rest of the workforce to do so. In this context, leaders include not only board members and members of the C-suite, but also anyone in a management role.
  • There must be an organizational commitment to awareness and training. Leading organizations are clear not only about the values they believe in, but also about what their expectations are for individual employees. These expectations are set forth in job descriptions and written policies and procedures, and are reinforced through training. If you tell people what is expected of them, then you make it easier for them to understand what they need to do to make the right decision. If leaders “walk their talk” by setting the appropriate example, employees will make the right decision by emulating their example.
  • There must be organizational transparency and openness. Communication flows within the organization need to be designed to ensure that information goes to the right people in time for them to correct the course if a problem is developing. Individuals throughout the organization need to feel comfortable in seeking guidance when they are uncertain how to proceed and in surfacing potential issues and problems. Thomas Donaldson, a Wharton professor of legal studies and business ethics, calls this a “culture of candor.”
  • Accountability must be clearly and consistently established and reinforced. Organizations with strong corporate governance understand that actions speak louder than words. They address consistently and evenly, regardless of level or whether the transgressor is a major revenue producer, instances where individuals operate outside of the organization’s rules or values. Just as importantly, however, they also recognize individuals who model the organization’s values. Ask employees in these organizations to describe the culture of their companies, and you will often hear the word “fair.”
It’s not that easy, of course. The average person makes hundreds, if not thousands, of choices per day, some trivial and some significant. And if Aristotle is to be believed, reason must compete with emotion and habit as the basis for those choices. That said, the organization that fails to abide by the principles set forth in the four key points introduced above is clearly at a disadvantage. It’s probably the right time for many companies, from the financial services and other industries, to take a hard look at their cultures.
About the Author
Carol M. Beaumier is Protiviti’s executive vice president, global industry programs. She oversees and coordinates the efforts of the Industry Program leadership, as well as guides the strategy for the program, which encompasses seven industries. Beaumier previously served as managing director and continues to lead the Global Financial Services and Regulatory Risk Consulting practices. She also is a key member of the Protiviti Financial Crisis Team. An experienced consultant and former bank regulator, Beaumier has extensive experience in a wide range of financial industry and regulatory issues. Beaumier has more than 30 years of experience as a financial services industry consultant. Before joining Protiviti, she was a partner in Arthur Andersen’s Regulatory Risk Services practice and a managing director and founding partner of The Secura Group, where she headed the Risk Management practice. Before consulting, Beaumier spent 11 years with the Office of the Comptroller of the Currency (OCC), where she was an examiner with a particular focus on multinational and international banks. She also served as executive assistant to the Comptroller, as a member of the OCC’s senior management team, and as liaison for the Comptroller both inside and outside of the agency.

Banking

UBX appoints new Chief Investment Officer

In line with its strategy to explore and invest in companies and platforms of the future, UBX—the Fintech and Corporate Venture Capital arm of Union Bank of the Philippines (UnionBank) — is announcing the appointment of Matthew Kolling as the company’s Chief Investment Officer (CIO).

Matt Kolling

Matt Kolling

As CIO, Kolling will be managing UBX’s Corporate Venture Capital (CVC) fund. He will also play a key role in raising capital for UBX while assisting the company in key corporate transactions, including the structuring of joint ventures and acquisitions.

Prior to his appointment at UBX, Kolling has been Head of Venture Investments at Aboitiz & Company since 2019, wherein he had been working with UBX on investment portfolio decisions. Before that, he held senior positions in Private Equity, Venture Capital, and Investment Banking at firms such as Providence Equity Partners and Morgan Stanley in New York.

Kolling has more than 20 years of experience in managing investments and deals in the Technology and Telecommunications industries and is active in Venture Capital and startup communities in the Philippines and the Southeast Asian region. He currently chairs the Manila Angel Investors Network, among others.

“We at UBX are excited to welcome Matt as our new CIO. We firmly believe that Matt will be instrumental in driving value creation opportunities, both within the CVC fund and our corporate ventures. We look forward to working with him as we fulfill UBX’s vision of a future where banking services are embedded into everyday experiences that matter,” said UBX president and CEO John Januszczak.

Meanwhile, UnionBank president and CEO Edwin Bautista said, “The addition of world-class talents in our pool reinforces our strategy to future-proof the organization and our business as we prepare for many new opportunities that come with the changing times.”

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Banking

It’s all relative: Older generations feel helping out the family financially is more important since the Covid-19 outbreak

It’s all relative: Older generations feel helping out the family financially is more important since the Covid-19 outbreak 1

Before Covid, 23% of people prioritised helping younger generations out financially, that increased to a third as a result of the pandemic

A recent survey* conducted by Hodge has revealed that the Covid pandemic has led to more people wanting to help younger family members financially.

A third (31%)** of those questioned said that since the Covid outbreak giving a financial gift to children or grandchildren is more important to them, compared to 23% who said it was a priority before the pandemic.

The traditional “Bank of Mum and Dad” is still very much open for financial help, with parents being responsible for 72% of the gifts, but the study also revealed that financial gifts can come from all corners of the family – including children (14%) and siblings (14%).

The survey also found that a third of people have received a financial gift from family, with those aged between 25-34 as the most likely to receive

The most popular reason for gifting money to family is for special occasions such as a quarter of gifts were given for weddings and birthdays but 11% of people have received money to help with big purchases such as cars and houses. In addition, 19% of people have received help with day to day finances, with around 14% of those receiving a gift have done so to pay off debt.

Emma Graham, Business Development Director at Hodge, said of the research: “Our study showed that, as a nation, we all want to help our family out when it comes to money. And whilst we all think of the Bank of Mum and Dad or Gran and Grandad as a traditional source, we were surprised to see that 14% of brothers and sisters are also helping out.”

The findings come from a recent intergenerational study conducted by Hodge, who interviewed over 3000 people about their attitudes towards finances and their aspirations for the future. The full research findings can be found at https://hodgebank.co.uk/2020/05/19/money-its-all-relative/.

As part of the study, people were also asked about paying back the gift, with 40% of beneficiaries expecting to pay their parents back, but this dropped to 28% if the gift came from grandparents.

From the gift donor’s perspective, 26% expect the gift to be paid back, however just 15% of grandparents expected the money back.

Hodge has produced a set of guides on how families can navigate the tricky subject of giving financial gifts within a family, as well as the considerations and steps that be families should think about taking before a gift is given, such as is it a loan or a gift and thinking about contingencies if the family member’s circumstances change. The guides can be found here: https://hodgebank.co.uk/news/

Emma continued: “It’s clear that families feel strongly about offering financial support to each other if they are able and this has increased since the Covid pandemic. Before Covid, 23% of people prioritised helping their families out financially in the next five years. Since the Covid-19 outbreak that has increased to a third of people saying helping a family member financially had become more important.

“So, it is clear that the Covid-19 lockdown and subsequent predicted economic downturn, has led to more families looking to share wealth to help younger children or grandchildren during this difficult time. Many people may look to Later Life mortgages, where many products have reduced their rates and have flexible lending criteria, to help out a loved during these difficult times.”

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Banking

New report identifies the factors which will determine SMEs’ chances of a successful COVID recovery

New report identifies the factors which will determine SMEs’ chances of a successful COVID recovery 2

·         Analysis of the performance of over 1,000 UK small and medium-sized businesses by Allica Bank provides roadmap for SMEs 

·         Regular training, an openness to innovation, and a clear vision all contribute heavily to an SMEs’ chances of success  

·         Allica Bank has launched a programme of free workshops to expand on the findings and support business owners 

Business bank, Allica Bank has combined data and insight from over 1,000 UK SMEs with a multiple regression analysis to determine what factors most closely aligned with an SMEs’ chances of success and separated the highest-performing businesses from their peers. These ‘rules for success’ have been compiled from the research data to support British businesses as they look to chart a course to post-Covid recovery.  

The full report identifies six behaviours for small and medium businesses to follow, to maximise their chances of a successful COVID recovery. The six top-line rules emphasised by the data were: 

Rule 1: SMEs should regularly train staff 

Of the top-performing businesses analysed, 47% provided training for employees at least on a quarterly basis, compared to just 32% of other businesses. Regular employee training was linked closely to success by the model.  

Despite this, many small businesses have neglected training and nearly half (46%) of the small businesses analysed only provide training for employees about once a year or less often. This included 15% that never provide employer-funded training. This discrepancy could represent a significant opportunity for small businesses to unlock the potential of their employees and thrive in the post-Covid economy. 

Rule 2: SMEs need to focus on innovation and technology 

Looking again to the best performing businesses, 76% were found to either continually (39%) or often (37%) be considering new opportunities for technology in their business. This is compared to only 51% for businesses considered to be outside of the top ranks, out of which only 27% admitted to continually looking for new technology opportunities. 

Rule 3: Small business must have a formal, long-term vision  

Nearly two thirds (66%) of the most successful businesses in the survey had a formal, long-term vision, compared to just 50% of businesses outside the top 100. Looking to the businesses that scored the lowest on the SME Performance index, only 37% claimed to have a formal, long-term vision. 

Rule 4: SMEs should broaden their customer reach and find new markets 

Of the top-performing businesses, 65% of these have overseas customers compared to just 40% of the worst performing businesses. Among the best performing SMEs, over a third (34%) identified international expansion as one of the top three drivers for their success. 

Rule 5: SMEs need to develop reinvestment plans 

22% of the best performing SMEs reinvested some of their profits into the business in the past three years with an average 9% of profits being redeployed. Tellingly, this is nearly double what other businesses admit to reinvesting in their business (5%). 

Rule 6: SMEs should engage with local business organisations and networks  

Of the top 100 SMEs, 30% had obtained external credit to expand over the past three years (compared to 24% of other businesses). Meanwhile, only 16% of all other SMEs had engaged with local enterprise partnerships or growth hubs in the past three years (compared to 23% of the top 100 SMEs). 

Chris Weller, Chief Commercial Officer, Allica Bank, said: 

“All small businesses are different, as are all small business owners, but one trait they share is an innovative resilience. Whilst the coming months and years will undoubtedly continue to present extreme challenges, there is no doubt that small and medium sized businesses across the UK will rise to meet them head on.  

“To give them the best chance to succeed, though, they need to be equipped with the right tools. There is certainly no silver bullet or panacea for every small business, but as this study has found, there are a number of common factors found in the most successful businesses that allow small enterprises to thrive and that they can consider individually for their business.  

“This research has identified common ‘rules for success’ that speak to every aspect of running a business, not just the financials. Once we saw these results, we wanted to use them to help small businesses begin to re-build and prosper, by outlining common factors and then examining how best they can be practically applied to businesses in all sectors of the economy.  

“Small business owners and their employees have been hit hard by the crisis, but they have the drive and resourcefulness to breathe new life into the economy and bring energy to post-Covid Britain. Our commitment at Allica Bank is to give them the support they need to do so, every step of the way.”

The full report contains a wealth of additional data and insight into each of these topics. As part of its mission to empower small businesses, Allica Bank is making the findings freely available and running a series of free online workshops with relevant partner organisations for businesses to attend.

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