The behavior of senior Bankers is in the news again this week. A BBC Panorama program played secret recordings potentially implicating the Bank of England and others in Libor rate scandal.
The program suggests that this recording brings into question evidence given in 2012 to the Treasury select committee, by former Barclays boss Bob Diamond and Paul Tucker, the man who went on to become the deputy governor of the Bank of England.
The recording has a senior Barclays manager, Mark Dearlove, instructing Libor submitter Peter Johnson, to lower his Libor rates saying: “The bottom line is you’re going to absolutely hate this… but we’ve had some very serious pressure from the UK government and the Bank of England about pushing our Libors lower.”
The SFO is continuing its investigation on the LIBOR affair. Meanwhile, Barclays is reported in the Financial times to be cropping the pay for chief executive Jes Staley after he broke regulations through attempting to identify an internal whistleblower in 2016.. and so it goes on.
With the continued bad behavior news stories since 2008 and the regulators renewed emphasis this year on culture, Risk Managers are increasingly being called upon to spot early warning signs of unsafe corporate behavior and to advise on what action needs to be taken.
The good news is that risk managers now have access to a growing number of tools and systems to assist and measure an organization’s approach to risk and to continue monitoring it along with establishing the right framework.
Culture is a hot topic among regulators and in particular within financial services. Problems can be seen in areas like over reliance on financial incentives, short-termism and too many employees working in silos.
Such firms are likely to make little effort with risk management and have poor corporate governance. There are many elements to company culture and it’s an amorphous concept that is open to interpretation.
A culture based on greed and excessive risk-taking was largely seen as being behind the financial crash of 2008 and regulators have since sought to ensure that culture and compliance are high on the agenda.
The evidence provided by the BBC and others has been aimed at investment banks for their involvement with LIBOR fixing and high stakes ‘casino’ strategies. But the payday loan industry has also been castigated while the mortgage industry was accused of being reckless in areas like self-certification loans – and mis-selling PPI remains a legacy issue that retail banks continue to pay for.
The FCA has stated that culture is one of its seven business plan priorities and its new Senior Managers and Certification Regime is just one way in which it is seeking to embed accountability and raise understanding.
The Financial Conduct Authority’s chief executive, Andrew Bailey, also spoke recently on the topic, calling his speech, ‘Culture in financial institutions: it’s everywhere and nowhere’, which was intended to show the ‘elusive’ nature of the subject.
He admitted culture change was a challenge but his message was one that urged firms to take responsibility, to identify behaviors and to control risks.
There are certainly business advantages to getting the culture right. If a firm secures the respect of its workers and customers, this creates an enviable situation and is one management should strive to achieve.
Bailey said emphasis must be on “the structure and effectiveness of management and governance, including the well-used phrase ‘the tone from the top’; and the incentives they create; the quality and effectiveness of risk management.”
The regulator, of course, has itself not always managed its own cultural issues particularly well. The former Financial Services Authority was seen as unfit for purpose and the pressure is now on the FCA to see it practices what it preaches. But a regulator can only do so much – the obligation is primarily on businesses themselves.
There are no short cuts. And while there has been much written on the topic and management gurus have many theories on how to inculcate good culture, the reality is anything involving people management whether in groups or as individuals is challenging, since there are many different behaviors and outcomes.
Being able to recognize a problem with culture is the first step in being able to put it right. With board level support, there are a range of ways that improvements can come about, from talking to new joiners about their perceptions, holding formal exit interviews and perhaps having an independent professional take a cultural audit.
Beyond this, there are now advanced systems available that can alert managers to early problems and help them to gauge where enterprise-wide risks lie. Having the right data and metrics allows advanced analysis. For those who embrace the technology, it signals the end of the tick box mentality and at long last, an enlightened approach to shaping cultural change.