Tone & Culture

10th February 2017

Increasingly we are hearing that tone and culture are prerequisites for financial services firms, as well as in other organisations. Many organisations have ‘toyed‘ with behavioural culture programmes over the last 30 years, launching company wide programmes underpinned by HR and marketing material. All too often the programmes have failed, as on many occasions they were utilised and high jacked by management, including directors, to squeeze more productivity or better results which benefitted the few rather than the many.

The FCA are very clear about culture and governance in fact it is one of their seven priorities this year, as set out in their 2016/2017 business plan. Jonathan Davidson, FCA director of supervision, retail and authorisations, has taken personal leadership of the culture and governance priority and spoke in length about it at the second annual Culture and Conduct Forum for the financial services industry in London. In his opening address he said: “Let me start by ‘un-muddying‘ the waters and state our position unequivocally. The culture of our regulated firms is and always has been vital in our regulation of their conduct. Therefore culture and governance is one of the priorities for our policy work, our thematic projects and for the work that we do in day to day authorisation and supervision”. Jonathan then defined culture as the typical, habitual behaviours and mind sets that characterise a particular organisation. He stated that the behaviours are the ‘way things get done around here’. They are the way we act, speak and make decisions without thinking consciously about it. Sitting underneath those behaviours are mind sets inside people’s heads, the beliefs or values that people feel are important. We can’t see these mind sets but they are the main determinant of behaviour from the office worker to the board of directors. He stated: “We are not going to prescribe the overall culture. Our ambition is for the conduct element of culture: that mind sets will shift to make doing the right thing for consumers the objective that is always considered, and that it trumps all other objectives for everyone in financial services”.

The FCA does not believe there is a one size fits all culture that comes off the shelf. They recognise that the regulated community is not homogenous. They also recognise changing culture is very difficult and that it takes time. They are perceptive that culture comes from the past and normally comes from the top down, ongoing programmes, systems and controls. They realise that the types of people who are attracted to and thrive in any one culture are those who have the mind sets suited to success. As a result, culture is remarkably resilient in the face of attempts to change it. It takes focus, consistency and time to effect change. Davidson stated:

The first factor shaping culture is ‘tone from the top’. We are therefore interested to understand how leaders are role modelling the professed culture. Is the culture, or the main determinants of culture, an important and regular item for board discussion? What changes are they making to break from the past? How do leaders spend their time?

The second factor surrounds the formal, tangible practices and cues which tell people what they need to do to be successful and ensure that the right people are employed and rise to leadership roles. Clearly the recruitment, compensation and promotion practices are critical to this. The third factor are the narratives that circulate in a firm that explain what the firm is trying to achieve, how it will be achieved and why it is important.

Key narratives that the FCA look at are the tone of the strategies, business plans, and mission and value statements. The most interesting and most accurate narratives are the ones that are referred to the most, repeated the most and passed on the most employees.

The fourth set of factors that shape the culture of a firm is the capabilities of the organisation depending on size. To learn a new mind set and set of behaviours requires new learning capabilities. Reinforcing industry competence is one of the outcomes that the FCA want to come from the Senior Managers Certification Regime (SMCR). The FCA SMCR, effective in banks since March 2016, is likely to replace our current approved persons’ regime in 2018, personal accountability and responsibility come with the territory. Your personnel will need guidance and assistance with the regime. The biggest question which tests every culture whatever the size of the firm is, ‘what do you do in the sticky moments?’ The moments when you face the culture test and people watch what you do, and then that becomes the culture. The boardroom or business owner sets the tempo, climate, and culture employees will follow, even if pretending to follow a pseudo culture.

What was your sticky moment, and what did you do?

Greg Stevens, Chief Executive, CCTA