The importance of measuring culture—and eight key principles for promoting it

Posted by Keith Darcy, Independent Senior Advisor to Deloitte & Touche LLP, and Dave Wilson, Independent Senior Advisor to Deloitte & Touche LLP, on May 17, 2016

“Culture” is the focus of significant regulatory attention in the financial services industry. It comes up in the aftermath of governance breakdowns, and is discussed as being at the root of what went wrong. In the light of high-profile conduct failures in the US, the UK and Europe, this reaction and heightened regulatory scrutiny is understandable. But a firm’s attention to culture can be more effective when it isn’t reactive at all.

In a new whitepaper, Management information on culture: Connecting the dots, we aim to refocus the spotlight on culture as a 365-day-a-year business-as-usual factor in a firm’s strategy and overall performance. It is critical to a firm’s long-term success to understand and manage culture.

As with any other critical performance element, paying lip service to culture isn’t enough. The starting point for any firm is to measure the culture it has, define the culture it wants, and map the elements necessary to get there. The critical tool is Management Information (MI) that addresses specific challenges. The result must include not only high-level principles, but also specific behaviors and expectations—not only data, but the analysis that leads to action.

Firms also risk misunderstanding the nature and purpose of culture. Particularly in financial services, there is a tendency to view “culture” and “risk culture” as interchangeable terms. As we detail in the paper, risk culture actually resides within a larger culture. Nor can an array of culture silos–for example, a diversity culture, a risk culture, a customer service culture–contribute separately to the same successful outcomes and effectiveness that a truly coherent culture can provide.

To help firms address this, we have defined eight critical principles that can help cultivate a body of MI:

  • Measured against the firm’s target culture. Senior management should articulate what “good” behavior looks like.
  • Objective whenever possible. When data challenges beliefs, don’t resist.
  • Drawn from a range of sources. Are you measuring all that you manage, or managing only what you measure?
  • Captures information on subcultures. How does culture shift when operations cross boundaries between nations, business lines, or levels of seniority?
  • Contains evidence-based analysis and recommendations. Indicators are useful, but the context that explains what they mean can be compelling.
  • Tailored to the audience. Where to focus and how deep to dive may not be a uniform decision.
  • Considers the pace of cultural change. Ambitious cultural transformations or big externalities (such as M&A) may call for more frequent capture and reporting of MI.
  • Supported by appropriate governance and capabilities. Who’s in charge at each step, and does each team have the authority and tools to meet its obligations?

Does culture lead to rules? No–it complements them. Hard and fast rules provide clear guidance, but they also leave loopholes. Culture is what guides an organization and its people in the spaces in between. And senior bankers are more likely to acknowledge cultural deficits in the industry (65 percent in a 2013 survey) than to identify them in their own firms (33 percent)1.

As Bank of England Governor and Financial Stability Board Chair Mark Carney is quoted as saying, “The succession of scandals mean it is simply untenable now to argue that the problem is one of a few bad apples. The issue is the barrels in which they are stored.2

1 Culture in banking: Under the microscope, Deloitte, 2013
2 The future of financial reform, Speech by Mark Carney, November 2014

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