One of the points I am constantly making when speaking to audiences large and small is that complicated policies, procedures, guidance, etc are ineffective. This is one of the reasons that values are often more effective than rules. It isn’t necessary to give complicated instructions to ensure that people don’t work around it like you would have to with a rule – the biggest mistake is trying to cover all eventualities – you will certainly forget something and there will be a loop hole.
One way to remind oneself about this (and other) key behavioural science insights? Read more from behavioural scientists…
On this blog I’ve referenced the work of Dan Ariely before, recommended the books of Margaret Heffernan as two examples. And I am always looking for more to add to my growing list of top reads. If you have one, be sure to let me know.
And meanwhile let me share a recent addition: the Human Risk newsletter. The latest issue hit my inbox the other day. Really worthwhile. It is from Christian Hunt – aka @HumanRiskBlog – and those hyperlinks should make it easy to follow his work. Enjoy.
Wonderful and intimate event this morning. And what a setting (thank you St. Barnabas for the work you do). And great to be in conversation with Pauline Blondet, VP at GAN Integrity and Isabelle Meyer, Deputy General Counsel at Just Eat.
Handwritten notes – the 5 keys…
And here, in reverse order… the big 5 keys:
5. It is not a programme or project – it is a forever effort. Bake it into the DNA of your organisation. Recruit / onboard / promote accordingly!
4. We cannot do it alone. Build coalitions with other functions, and line-of-business. CEO? Sell her/him on the fact that a strong (ethical) culture is good for business. Build a library of business cases.
3. Nothing effective was ever devised in isolation. At HQ, co-create with ethics ambassadors / culture navigators.
2. You need to understand the culture(s) – and what motivates people. What motivates people? Organisations don’t change. People do!
1. V-A-L-U-E-S
Be sure to follow #EthicalBusinessPractice to learn more. And thanks to all who braved the heat to come to Soho.
3 Quick Quotes from the Global Legal Group Fireside Chat: Beating the compliance gap
“We are here to discuss the intersection of risk, innovation and regulation and the role of integrity and compliance in helping the Board successfully navigate these treacherous but critical waters.”
“Compliance can only grow in a strong ethical culture. A strong ethical culture is the only petri dish that will grow compliance…”
“A global team is needed, and unless those teams communicate oversight globally, things can fall through the cracks.”
“It is very important that local and HQ appreciate each other’s issues – the central compliance function should not always be in ‘broadcast mode’.”
Follow #EthicalBusinessPractice to learn more. And I hope to see you at a future Global Legal Group event. Thanks to my fellow panelists for a stimulating discussion – and the actionable insights.
Last week I had the pleasure of participating in a conference focused around the question “Can we regulate for innovation and can we innovate in regulation?”.
Robert Madelin, Chairman, Fipra International, has written an analysis that crystallises the Opening and Concluding Remarks at the conference. It covers the challenges, the lessons and the learnings on the day. I commend it to you. Read it here.
Also, some of the materials from the day are now available:
Andrus Ansip, Commissioner for Digital Single Market and Vice-President of the European Commission – speech
Christopher Hodges, Professor of Justice Systems at Oxford University and Fellow of Wolfson College – lecture
Ruth Steinholtz, Business Ethics Advisor, AretéWork – presentation
Elisabeth Crossick, Head of Government Affairs, RELX – speech notes
As part of a moderated, but informally structured conversation, our speakers will discuss how to help legal advisers set a firm board agenda for innovation, while managing appropriate risks. The discussion will include:
How to analyse such gaps and integrate compliance into your organisation
Navigate the challenge of compliance by identifying routes to value
How to compare relevant laws, and assess specific gaps to be corrected before implementation
Viewing compliance as a source of competitive advantage and customer differentiation
How best to facilitate collaboration across the business to enable to meet emerging threats head on.
A global network connecting, celebrating and championing women in risk, regulation and compliance. It has proven to be a great forum to engage and interact with peers, exchange ideas, opportunities and insights in the governance risk and compliance industry.
Driving a focus on ethical behaviour in your organisation
● Is influencing activity on the front line more important than changing corporate policy?
● Are rules or principles more conducive to driving ethical behaviour?
● What role should deterrence have in embedding a values-based ethics system?
● Using behavioral economics and psychology to drive internal change
● Do customers need to be re-educated around ROI in a principles-based system?
This is my first visit to Australia (I’m here for this year’s #RefinitivSummit). And I have landed right in the middle of the best place and time to explore ethical business practice and regulation. Why? A Royal Commission on misconduct in banking and financial services recently delivered its final report. And banking touches all sections of society.
If at first…
The recently re-elected government originally resisted the inquiry. Now it has promised to adopt the bulk of its recommendations. Quite a change.
There is a flurry of activity by both financial regulators and financial institutions around this. Yet much of it seems to be occurring without an appreciation of how to bring about real change.
Front page headlines in the Sydney Morning Herald on Saturday took up the topic, quoting Helen Coonan, the Chair of the new Australian Financial Complaints Authority (AFCA). She says:
“Poor culture in financial institutions has been identified as the main culprit that permitted a slew of bad practices, appalling treatment of consumers and small businesses, and in many cases arrogant indifference to regulatory and compliance risk…”
Ms Coonan also asserted that the:
“AFCA is playing an important part in restoring shattered community trust and confidence in the financial services sector.”
How exactly they are going to do that while slamming financial institutions in speeches is not obvious.
Treating them like children…
No doubt there has been some appalling behaviour in these institutions. And everyone agrees that culture is at the root of it. So, while the Royal Commission covered many subjects, and I will focus only on: Section 2 – Culture.
There is a lot to agree with in the Report, including the statement that:
“Culture can-and must-be assessed by financial services entities themselves”.
It goes on to say that entities must form a view of their own culture, identify problematic aspects and change them, followed by reassessment.
I agree wholeheartedly with this statement, however I am not sure that they actually mean it. As the Report goes on to say that in organisations that have the most problematic cultures:
“There is…an important role for regulators to supervise culture – that is to:
Assess the entity’s culture
Identify what is wrong with the culture
‘hold up a mirror’ to the entity. … and educate the entity about its own culture;
Agree what the entity will do to change its culture; and
Supervise the implementation of those steps.
This would appear to contradict the categorical assertion that “Each financial services entity has primary responsibility for its own culture.”
Cultural transformation clues – to try try again
I would like to make two points, although there is so much more to say.
First, as we say in our book (Ethical Business Practice and Regulation) culture cannot be changed from the outside. Efforts to do so are bound to fail, and the one mentioned above is no exception – being based upon a PARENT-CHILD relationship (if you’ll forgive me for drawing on the field of psychology).
The essence of Ethical Business Regulation (EBR) is that regulators should encourage organisations to assess – and deeply understand their own cultures. And to bring credible evidence that they have done so as the basis for developing a relationship based on trust.
Those who know me will know that I am passionate about the use of the values based Cultural Transformation Tools of the Barrett Values Centre for this purpose.
The other point I would like to make is that unless and until regulators, the media and politicians stop blaming blaming every financial institution and person in them we will not achieve change. Why? Blame is the opposite of an environment of psychological safety. And psychological safety is so important for an open, just culture where the true root causes of misconduct will emerge.
Stepping up enforcement where intentional criminal behaviour is found is fine; but taking the same attitude towards all misconduct will accomplish the exact opposite. Behaviour will remain hidden and defensiveness will prevail.
Regulators and financial institutions must recognised the nuanced reasons for misconduct. There is a need for (some counterintuitive) steps to be taken in order to eliminate blame culture – and encourage accountability.
There are many factors that created the misconduct in the first place, and the solutions are not simple, nor will they be immediate.
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