Economy
Bottom-Up Approach Better Than Top-Down In Banking Culture New Report Suggests
A report recently published by NEST indicates that firms who rely on the mantra of “Tone from the Top” may not be achieving optimum results in terms of embedding the desired culture in their firms.
The research, revealed at a CISI seminar this week, points to the need for engagement by staff at the lower end of the organisation as being key, with markedly worse results being obtained where control of the message and policy is solely vested at Board level.
The report from Dr Paul Cox, Senior Lecturer of Finance in the Business School at University of Birmingham and a Senior Adviser to the National Employment Savings Trust (NEST) shows that a great improvement in culture was made when not set from the top. The culture change in banks was more innovative and dynamic when strategy and implementation was ‘driven’ from within the business and not from the top.
The report findings contrast with the preface of the UK Corporate Governance Code that a key role for the board is to establish the culture, values and ethics by setting “the correct tone from the top.”
The study was based on meetings NEST held with officers and directors of UK banks to discuss their conduct and culture programmes during 2014 and 2015. NEST is one of the largest in the UK by membership with over one million members, and invests in all the large listed banks.
The meetings were undertaken by NEST to gain the confidence that its investments in the banking sector are being appropriately managed by companies. The pension fund was also looking to reduce systemic and systematic risk by encouraging banks to work together to share good practice and to facilitate an improvement in integrity, conduct and competence to lift the performance of all banks in the sector.
The study found that in 2014 and 2015, corporate purpose, organisational culture and staff in the business were the heart of conduct and culture.
The findings showed that from a culture perspective the board should not set the tone from the top. This, the report says, is because a myriad of people interactions constitute culture and therefore we are in danger of reductionism in believing that a board can simply do this.
Culture is a slow-moving constitution and the evidence from this study is one of years of effort for slight improvement.
“Culture is interpersonal and embedded by people doing banking day-by-day, which comes from a myriad of inter-relationships and interactions at a grassroots level.
“To get to the heart of culture and provide the shift that banks and regulators desire, much more effort needs to be expended at the grassroots level where interactions, intent and action occur”, says Dr Cox.
“A board can set values, mission and purpose but people together constitute the culture. Culture is an outcome,” says Dr Cox.
The paper reports new and recent research into how small groups of people – officers, directors and managers – are designing and delivering conduct and culture programmes at UK listed banks. The project, spanning two whole years between 2014 and 2015, “represents a rare insight into an industry-wide attempt to improve intent, action and outcomes.”
Simon Culhane, Chartered FCSI and CISI Chief Executive said: “This is an interesting piece of research, especially in the light of work we have been doing over the last two years with a number of international banks. We have seen how important it is not only to have a strong message from the top but active engagement and empowerment across the organisation.”