(Note: the thoughts below are drawn from a keynote address and workshop I will be giving in Sydney, Australia on October 12th to the Culture and Conduct in Financial Services Conference.)
Between 2008 and 2015 the global financial services sector has been fined over $300 billion by regulators and government agencies for excessive risk taking resulting in trading losses, money laundering, outright fraud and mis-selling of products and services. And many industry and academic experts put the global recession which began in late 2007 down to the casino-like dealings of banks, S&Ls and Insurance companies in a search for greater and greater ways to make profits, which usually came with greater and greater risk.
As a result, the banking industry is currently at the bottom of the consumer trust table for institutions, and just barely above politicians for trust by the general public.
And a number of once highly respected, bell-weather banking institutions, like CitiGroup and Bank America, have been trading at one half to one-third their pre-recession high share price for the past 8 years!
Culture Change and Risk Culture is the Flavour of the Month
The term Risk Culture is used within the financial services industry to describe the shared perceptions among employees of the relative priority given to risk management, including perceptions of the risk-related practices and behaviours that are expected, valued and supported
According to a recent Ernst & Young study, nearly 75% of global banks and financial institutions claim to have begun efforts to improve the culture of banking and in particular, improve the risk culture.
Yet that same study concluded that only 38% of executives believe their risk culture is aligned with the stated risk strategy (risk appetite) of the bank. In simple terms, the movie and the words don’t synch!
As a result of external pressures, such as greater regulation and compliance requirements, mounting fines and declining public trust, banks and financial institutions are implementing multiple actions and additional risk structures in order to improve risk conduct and decrease the number of negative risk events.
Great, But Something’s Missing!
If you look at the above carefully you will see many actions and internal risk structures that banks are taking to improve risk conduct.
But to me, something very important is missing with all these activities. An understanding of the Overall Corporate Culture in which all these activities take place. New Risk Structures are supposed to improve the Risk culture, which in turn is supposed to improve conduct. But what most people don’t understand is that this process takes place inside the existing corporate culture!
Corporate culture is much like the waster in an aquarium. Clean and clear water makes everything work. Dirty and foul water makes the whole aquarium toxic!
On October 12th in Sydney, Australia I will be giving a keynote address and workshop to a conference on Culture and Conduct in Financial Services. My goal is to help the attendees understand what culture is, why it is important, and what are the 4 key levers that can truly impact and improve conduct and risk-related behaviour in the financial services industry.
Here’s a link to the conference if you want to know more. As you can see, I am the only non-banker on the list.
Should be fun!
Written and Posted by: John R. Childress
Senior Executive Advisor on Leadership, Culture and Strategy Execution Issues,
Business Author and Advisor to CEOs
Visiting Professor, IE Business School, Madrid
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John also writes thriller novels!