Culture in financial services firms has moved towards the top of the agenda for regulators, investors and consumers in the wake of excessive risk-taking by some firms in the run-up to the financial crisis and a string of misconduct scandals. Despite this, there can be a tendency on the part of some in the industry to see culture as "someone else's problem". A Deloitte survey on culture in banking carried out in 2013 found that 65% of senior bankers believed there were significant cultural failings across the industry, while only 33% believed the same of their own bank.
Financial services firms outside the banking sector have generally received less scrutiny in this area than the banks. However, this is likely to change as regulators apply the lessons learned in banking to other sectors. For example, the UK Senior Managers Regimes, which prescribe specific responsibilities in relation to culture to ensure that it is taken seriously at the top of the organisation, is expected to be extended to all financial services firms by 2018. At the EU level, the European Insurance and Occupational Pensions Authority (EIOPA) has called on insurers to create a more customer-centric culture and a strong risk culture. Moreover, and more positively, some firms are paying attention to their culture because they recognise that culture drives outcomes and they believe a positive culture is a way to differentiate their business from competitors.
While there are certain cultural characteristics that are generally considered to contribute to positive or negative outcomes, there is no single "good" culture. Each firm needs to articulate its own desired culture, consistent with its strategy and risk appetite. To be effective, a target culture statement needs to include both principles and specific, measurable behaviours. These desired behaviours can then be used to form the basis of a culture assessment.
Firms need to think carefully about how they assess their culture. Although culture is inherently difficult to measure, it can and should be understood and assessed because it is a key aspect of a firm's business. Using only a small number of indicators may give an incomplete picture of a firm's culture or make it possible for business areas to manipulate the findings to hide poor results. On the other hand, trying to capture every piece of information which could indicate something about culture may result in boards and senior management drowning in the detail. Moreover, some types of indicators can be misleading if the results are not carefully analysed and interpreted. In addition, expressions of culture are unlikely to be uniform across a large firm operating in many countries and business lines.
Drawing on Deloitte member firm culture experts across EMEA, the US and the Asia-Pacific region, as well as discussions with clients, we have developed eight principles for collecting management information (MI) on culture to help firms deal with some of these practical challenges:
- Measured against the firm's target culture
- Objective wherever possible
- Drawn from a range of sources
- Captures information on all subcultures
- Contains evidence-based analysis and recommendations
- Tailored to the audience
- Considers the pace of cultural change
- Supported by appropriate governance and capabilities
Our view is that, regardless of how strong or weak a firm's culture is currently, culture needs to be understood and actively managed. To facilitate this, Boards and senior management need to collect meaningful MI that will enable them to connect the dots on their culture and understand if their "tone from the top" is reflected in a strong and consistent "echo from the bottom". More detail on how this can be done, and a full explanation of the eight principles, is set out in our paper
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