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Company culture

Cross culture: What banks can learn from corporate culture reform

Tad Simons  Technology Journalist/Thomson Reuters Institute

Tad Simons  Technology Journalist/Thomson Reuters Institute

Learning from the mistakes of others is a bedrock principle of business intelligence, one put into practice during a recent panel discussion sponsored by Thomson Reuters entitled, “Cross Culture: What banks can learn from corporate culture reform.”

The audience for the event was a standing-room-only crowd of bankers and financial services professionals gathered to hear from a select panel of speakers, all of whom are compliance officers at companies — Novartis, Volkswagen, and Tenneco — that have weathered recent scandals and are involved in reform measures to address their businesses’ costly cultural failures. A show of hands revealed that many in the audience work in compliance as well, in an industry — banking and financial services — that is still struggling to right the ethical wrongs that led to the 2008 financial crisis and its ongoing aftermath.

Moderator Stein Berre, senior vice president of large financial institution supervision at the Federal Reserve Bank of New York, began the discussion by noting that one of the biggest challenges facing the financial-services industry is a “star culture” that rewards “big producers,” and is by its monetary nature highly transactional. In a win-at-all-costs business culture that prizes profit over people, he asked, “What can best be done with rules, and what with norms?” — rules being strict policy measures that prohibit certain activities, and norms being those aspects of cultural esprit de corps that encourage ethical behavior.

Klaus Moosmayer, chief ethics, risk and compliance officer at Novartis, began by admitting that his own industry — pharmaceuticals — is highly scrutinized and regulated and rule-based, yet is also “not living up to the expectations of society.” But “all [highly regulated industries] are in the same boat,” he observed. “The question is how you apply culture to [the rules].”

“We can paper the company to the moon and back with rules, but if you don’t have the culture to tell you when rules are being followed — or when they’re not being followed — you can put a whole lot of effort in without much impact.”

Volkswagen Group’s Chief Compliance Officer Kurt Michels agreed that rules alone do not work, and that the preferred goal is an “integrated culture” where rules and norms reinforce each other. “An organization with only excellent rules will not make it,” he said. “It’s better to have an integrated culture and fewer rules than the other way around.”

Kim Yapchai, chief ethic and compliance officer at Tenneco, agreed that putting guardrails on greed is difficult without a supportive culture. “We can paper the company to the moon and back with rules,” she said, “but if you don’t have the culture to tell you when rules are being followed — or when they’re not being followed — you can put a whole lot of effort in without much impact.”

Culture change: a long journey

Compliance officers are of course the “rules” people, and they often find themselves in situations where their job duties conflict with management decisions that seek to stretch or break the rules. Admonitions to “walk the talk” are empty without a business culture that embraces, reflects, and promotes principled ethical behavior from its leadership on down. But those who want to actually change their business culture face many challenges, the panelists agreed, from leaders who have strayed from an organization’s core mission and values, to ethical apathy in middle management, to cultures and people for whom the end justifies the means, no matter the consequences.

“The biggest enemy of cultural changes are cynical people,” said Novartis’s Moosmayer, adding this means employees who disparage attempts to improve culture or disrespect leadership. “It’s a fight we have to have every day,” he explained. “But we have to be honest and ask ourselves, what is our purpose? What kind of cultural management model do we want to have, or to change?” He also cautioned that “cultural change is a long journey,” one that involves every aspect of the company — “how we speak to each other, how we listen, how we hire” — and for which there are no quick fixes.

Cross Culture

Both Tenneco’s Yapchai and Volkswagen’s Michels agreed that it was necessary to change internal reward systems to acknowledge not only star economic performers, but also people who, as Yapchai noted, “reflect and exhibit the values of the company.” Michels went so far as to suggest that ideas about “success” need to be re-defined to de-emphasize stellar economic performance and recognize employees who may not be star performers in the conventional sense, but who have “decent success” and “honest values.”

Moderator Berre noted that one of the things financial institutions struggle with is instilling a sense of pride in the organization’s “mission,” since they don’t sell a product, like cars or drugs, that provides a clear, brand-identifiable benefit to society. Michel said that beyond making safe cars, he thinks of “how many people depend on Volkswagen” as part of the company’s value and suggested that bank employees should feel a similar civic pride. Moosmayer was quick to add that a corporation’s social value includes the communities and families it supports.

“What I hate most is this distinction people try to make: here’s society, here’s the corporation, here’s the town,” he said, and urged people to think of the relationship between companies and society more holistically. “We are all in society,” he said. “We are the town.”

Project whistleblowers

All the panelists agreed, however, that when it comes to instilling a more ethical business culture, two of the key ingredients are encouraging a “speakup” culture and having a process in place that allows whistleblowers to safely call out misconduct.

Surveys, interviews, and “pulse checks” can and should help compliance officers measure the degree of transparency and openness in their organization — but, cautioned Yapchai, the culture itself needs to protect whistleblowers. If you have a whistleblower hotline and no one is using it, “you’re either perfect, or that’s a red flag that something’s wrong,” she said, adding that companies should think of whistleblowing as part of a “continuous improvement system.”

“That’s part of having a speak-up culture,” she said. “Managers need to understand the value of speaking up.”

Moosmayer added that at Novartis, so-called “problems” (and even the occasional crisis) are seen as opportunities to improve, and if the compliance function is doing its job correctly, problems should come with the territory.

“A good culture of ethical compliance means you just see more,” Moosmayer said. “We also need to convince regulators, prosecutors, and NGOs not to condemn companies who see something and act. That’s a good thing. We are all part of society, so we should all be lobbying not to trust companies that are silent, and not to punish the ones who are trying to do the right thing.”