Is Your Culture Minimising Conduct Risk?

Regulatory reform is a topic that many firms are currently challenged with. While many are working through the technological changes of meeting requirements, there’s still the human side of compliance that you need to address.

No matter what industry, human behaviour can be hard to change. The principles of behavioural economics can help us predict what people will do in a certain situation and that helps create an environment that drives the right behaviours.

In a highly regulated industry, the firm’s culture – official and unofficial approved set of behaviours – comes at a high cost. The wrong kind of culture can lead to misconduct, lawsuits, fines, bad publicity and loss of talented employees. However, good cultures with committed employees:

• Outperform their peers by 147% in earnings per share (Gallup)
• Achieve revenue growth 2.5x greater than those in the bottom quartile (Hay Group)

Culture is also important for building confidence and trust with your clients, and while it can take a while to build, it doesn’t take long to destroy.

• Business units that scored in the top 25% of engagement had customer ratings 12% higher than business units scoring in the bottom 25% (Gallup)
• Less engaged employees have far more misgivings about their organisation in terms of meeting customer needs and are likely to have little personal investment in a strong customer focus (Towers Perrin)

Perhaps you agree that culture is a significant factor in determining your firm’s financial performance, customer satisfaction and reputation, but you’re still swamped by other reform projects. In an August 2016 speech at the Risk Australia Conference, Cathie Armour says it perfectly:

“Technology and other tools can be used to simplify, automate, reduce operational risk, and deepen insight into a whole range of areas. But, particularly when it comes to governance and compliance, they do not replace the need for humans to make decisions about risk management, how the firm treats its clients, and how your firm complies with regulation day to day.”¹

No matter what reforms you’re implementing, it’s your employees’ behaviours that will make or break them. This is where your culture takes centre stage. Does it:

• Focus on performance measurement?
• Target harmful and inappropriate behaviours?
• Encourage people to do the right thing?
• Empower people to come forward without fear?
• Recognise positive behaviours?
• Provide an opportunity for continuous improvement?Promote customer over self?
• Measure which of the firm’s values are demonstrated?

With the right culture, you’ll attract people who want to adhere to the “rules” and build a ripple effect that changes behaviour throughout the organisation. With the wrong culture, no amount of investment in technology will safeguard you from potential risk.

¹Keynote address: Regulatory perspective on conduct risk, culture and governance.