"Bad eggs", "rotten apples", "excellent sheep" and "permafrost" are some of the people who may contribute to a negative culture, according to this week's FCA Discussion Paper "Transforming Culture in Financial Services".
The paper pulls together 28 essays from thought-leading academics, industry leaders, international regulators and change management practitioners. The essays discuss what a good culture might look like, the role of regulation, how firms might go beyond incentives, and how to change behaviour for the better. The paper does not purport to provide definitive answers, but is intended to stimulate further debate on how to drive sustainable culture change, with a recognition that "firms’ behaviour will only transform for the better if change is chosen, rather than imposed".
Three key themes emerge:
- there has been a shift from linear thinking about culture and conduct to a dynamic, systems perspective. While linear thinking diagnoses and links one cause to one effect, a systems perspective acknowledges the whole system around the individual and the interactions between each part in the system. Practically, this means a whole-system approach to culture with alignment between the formal (purpose, processes, structures, systems) and informal aspects (beliefs, norms and unspoken rules), together with a focus on every individual in the system (organisation);
- organisations should foster "psychological safety" and learning as a means for employees to speak up, collaborate, and innovate; and
- regulation – at least in its current form – can only go so far in improving culture. Firms and other industry stakeholders have a vital role to play.
The paper also offers actionable insights for financial services leaders to consider in relation to how they might effect change in their organisations. These insights include:
- using behavioural science to guide incentives and cultural change;
- looking beyond the role of leadership in effecting change; and
- applying strategic focus to the continuous process for adapting culture.
This is an interesting approach from the FCA with thought-provoking content and differing perspectives. The FCA now asks the industry to "take responsibility for delivering the standards it aspires to" and engage with the paper so that it can "act as a springboard to speed up the pace of change, build consensus and, ultimately, drive better outcomes for consumers and markets."
The paper will also undoubtedly help shape the agenda at the FCA's Transforming Culture Conference on March 19th.
