Friday, 18 December 2009

A Huge Cultural Change in the Black Box of banks

I was recently asked to speak at a Banking workshop in Nice that was hosted to address some of the key challenges facing this sector currently. I was fascinated by the depth of feeling that things needed to change, and the ambiguity about what that change should look like. My take away concerns were that, whilst this sector understood the need for change, it should not be change for change sake, or change build upon bad PR and therefore something needs to be done, or change that is force fed to the affected individual. We need to be very conscious and aware of the existing strengths and weaknesses of the current structure, systems and culture before contemplating what change we would like to see.

Organisations develop cultures because they are made up of different types of people and led by people of varying skills and behaviours. The culture of an organisation reflects its beliefs, its values and its purpose. When leaders fail to evolve and align culture with business strategy, the organisation will evolve a culture by default. I suggest that the banking culture is a common theme underpinning bank performance – both good and bad. Not the only one, but certainly one of the least understood by outside observers. Once a culture is formed it becomes hardened like granite, understanding the levers for change and changing it can be a lengthy and difficult proposition. Therefore, creating and sustaining a vibrant and robust culture should be a very deliberate process. Care should be taken when attempting to change a culture, as it can have dramatic impact— detrimental if not carefully planned and facilitated—on the long term viability of the business enterprise.

Culture tends to be something of a challenge in understanding companies. For all of its implied significance, cultural change tends to rate alongside tarot card reading and astrology in terms of leaders willingness or ability to do something about it. They categorise it as a “soft” issue, something they know they need to address and they have a nagging sense all is not well, and in fact inhibits the business.
In fact, culture is not a “soft” issue. Culture can be explicitly defined, and it generally develops out of tangible (and controllable) actions within a company, not in a murky black box.

To have a strong banking system, there has to be a strong banking culture that is creative and regulated where there is accountability and a tie between risk and reward. This seems very obvious now. This means that the best banks will relate risk in the long-term to the rewards they provide in the short-term. They will also build-in claw back terms to any bonuses paid such that if those bonuses blow-up as high profile risk and losses in the future, they get the cash back.

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