Over the past several months government agencies and business leaders have begun an intense and very public debate about how to prevent another financial meltdown, and another bailout, now that the global economy seems to be headed for recovery. The big issue concerning governments and regulators is that unless real change is implemented in how banks conduct their business and how they are regulated, the world could easily find itself in the same situation as before; the combination of excessive risk taking and lax regulation leading to another global financial crisis.
While everyone seems to be focusing on regulation as the key strategy for bringing the situation under control, we believe that other avenues should be both understood and explored if a sustainable solution is to be created. One of these important avenues is corporate culture. Warren Buffet, one of the more savvy investors of the past three decades made a bold and profound statement in his recent annual letter to the Berkshire Hathaway shareholders:
“Culture, more than rule books, determines how an organization behaves.” – Warren Buffet
In addition, another insightful comment comes from Paul Moore, former head of risk for HBOS, now part of Lloyds TSB.
“There is no doubt that you can have the best governance processes in the world, but if they are carried out in conditions of greed, unethical behaviour and an indisposition to challenge they will fail.” – Paul Moore, former head of risk, HBOS
Paul Moore got fired for his comments at the time; a testament to the openness of the previous banking culture to criticism about its internal culture and ways of working.
We strongly believe that reshaping corporate culture, in conjunction with prudent regulatory changes can work together to help build a stronger, more responsive and responsible banking industry. One of the challenges in this approach is that the importance and business impact of corporate culture is not well understood. Too many refer to culture as the “soft stuff” with little relevance to the analytical business world of global finance.
To help those in the banking industry and the regulators to better understand corporate culture and its value to business performance, we have prepared a series of four articles, entitled: Why Banks Should Focus on Culture, Now More Than Ever. Each article builds upon the previous one, and should be read in succession. The four articles focus on:
- Article One: What is Corporate Culture and Why it Matters to the Bottom Line?
- Article Two: The Determinants of Corporate Culture.
- Article Three: Is the Culture of Banking Broken?
- Article Four: How to Reshape Corporate Culture
For those who need a better understanding of how the financial services industry has changed from a“public service” into a “corporate pirate”, you should read the informative article by Demetrie Comnas on The Origins of the Banking Crisis.
Tight Lines . . .
John R Childress