Corporate culture remains riddled with problems. It’s time for an honest conversation, writes Lucy McNulty, editor of Following the Rules, in today’s Notebook
Corporate culture wars
Bank bosses are failing to meaningfully improve their institutional culture – that was the surprisingly damning finding from a new report from the University of Cambridge’s Centre for Climate Engagement.
“Many banks that are lurching from crisis to crisis realise that corporate culture has something to do with it. However, they can’t seem to get the conversation past the early stage of corporate values,” said report author Tina Mavraki, who interviewed 65 senior executives including banks’ chief executives and chief risk officers as part of her research.
Banks’ cultural challenges “have been building over a long period,” the report continued. “Banks are running out of time to contain them.”
It is concerning that these findings come after years of regulatory reforms targeting cultural improvements. Just a year ago, the Financial Conduct Authority’s ambitious new consumer duty was introduced to improve the culture of firms by ensuring they focus more on consumer outcomes. The sector’s reaction to the regime has – publicly, at least – been broadly positive.
Clearly, it’s time for frank conversation.
After all, financial institutions’ interests are never entirely aligned with regulators’ objectives. And a perennial challenge for City bosses is finding a way to balance their commercial pressures and incentives with their myriad regulatory obligations.
But this task would be made easier, and the potential for misstep reduced, if it were possible for both sides to have a healthier debate on the competing pressures at play here. That would require regulators and bank chiefs to have an honest conversation about the commercial pressures that tend to pull regulated firms away from their regulatory goals. Similarly, bank chiefs need to speak up when they have doubts about particular reforms.
Of course, such honesty is difficult. Take the consumer duty. Lobby group UK Finance was excoriating in its criticism of aspects of the new regime it felt were unworkable but no major firms were as openly critical. Privately, of course, it’s a different story.
A huge amount of effort has been made in recent years to leave the City’s cultural shortcomings firmly in the past. But if lasting, meaningful cultural change is to be achieved, we need to find practical solutions and those can only start with honest debate on the topic between bank chiefs and their regulators.
Regulators are going for growth, but let’s not push it too far
The City’s top watchdogs are rethinking aspects of their rulebooks in response to a broader – and politically driven – push to promote competitiveness and growth in the UK. This should be good news. After all, who can’t name a set of rules that isn’t working exactly as intended?
The Prudential Regulation Authority’s (PRA) Sam Woods told the Following the Rules podcast this month: “Where we have regulations that we don’t think are doing a good job or indeed might be doing things which are harmful and not good for competitiveness and growth, we will get rid of [them]”.
FCA chief Nikhil Rathi has made similar commitments. Such actions are, of course, a response to regulators’ new secondary legal objective to promote growth and competitiveness in the UK. But for these efforts to be successful, the government must make clearer how they expect regulators to balance this new commitment alongside their primary responsibility to promote well-functioning, consumer-friendly financial markets.
Without that, the government risks pushing regulators towards an agenda that is not just pro-growth, but growth-first. And ultimately, that’s bad news for UK plc.
Pink-sky thinking
PRA chief Sam Woods also set Following the Rules’ listeners some homework: to think about what might happen if the world were to experience another ‘Carrington event’. “I like it as an example of something that’s a bit left field and worth thinking about,” he said. Woods is referring to history’s greatest solar storm, which would have serious consequences for our hyper-connected, digital society if it were to reoccur. Certainly, it puts regulators’ focus on businesses’ operational resilience into focus.
Quote of the week:
“It is time that the Treasury moved on from just counting the costs of investments, to recognising the benefits too.”
Chancellor Rachel Reeves called for a new approach to public sector investment at this week’s Labour party conference.
What I’m listening to
In a world facing ever complex problems, this is a podcast for those craving some simplicity. Every episode sees seasoned presenter Catherine Carr asking strangers one question: “where are you going?”. And so, begins a show devoted to the simple joy of sparking conversations with strangers and the profound sense of human connection that can arise from doing so. The answers – sometimes brief, sometimes not – are a compelling combination of very ordinary and unexpectedly heartwarming. I briefly thought I had stumbled across a hidden gem, then I realised that – unsurprisingly – the podcast has already secured plaudits from the Radio Times, the Financial Times and others. But if this series is new to you too, make sure to check it out.