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Transforming Culture in Financial Services

Fiona Hathorn, Managing Director Women on Boards UK,  May 2018

The Financial Conduct Authority is starting to turn the heat up on companies regarding their culture, and about time too. 

The Financial Reporting Council (FRC) has been looking at corporate culture for a couple of years now but it seems that the Financial Conduct Authority (FCA) is finally getting serious as well and is requesting that boards outline and understand their company’s culture.

So are you, as a non-executive director and/or a trustee, prepared for outside scrutiny of your organisation’s culture  - can you even  define what that culture actually is? Most directors I meet in the financial services sector cannot even define the word “culture”, let alone articulate what makes their company’s culture different from their competitors. 

According to the FRC “Culture in a corporate context can be defined as a combination of the values, attitudes and behaviours manifested by a company in its operations and relations with its stakeholders. These stakeholders include shareholders, employees, customers, suppliers and the wider community and environment which are affected by a company’s conduct”.

In 2016 the FRC embarked on a culture coalition project to better understand how boards look at and assess their culture and they published their findings in this report => Report, Corporate Culture and the Role of the Board

Within this report the FRC answers several questions, some of which you might find useful;

-    How can the board influence and shape culture? 
-    How can the executive team bring their specific cultural values to life?

Now the FCA too is getting involved and in March of this year (2018) it released a discussion paper on Transforming Culture in Financial Services, report link.

The FCA is interested because they now know for sure that, within the financial services sector, poor corporate culture was the root cause of the major conduct failings which historically caused financial distress to both consumers and companies as well as damaging the UK’s financial services reputation. They are also fairly sure now that there is a link between pay/overall reward and poor conduct when KPI’s have financial rewards that are not linked to customer satisfaction. 

For markets to work and firms to be successful, the FCA believe it is critical that they are seen as trustworthy. As they state in their report ‘Social expectations have changed, and public interest has raised questions of trust in firms, and in the industry as a whole. To increase confidence, firms need to demonstrate they are working in the interests of consumers and the market’. 

But changing culture can be hard. If you read the FCA’s report, it is clear they are fully aware that some CEO’s and boards still see changing culture as a ‘soft’ discipline; and that defining what we mean by it and how to measure and manage it are all extremely difficult.
The FCA’s paper was designed to gather views from industry leaders, academics, and practitioners as a basis for debate on how to drive sustainable culture change. 

The FCA’s ‘culture’ discussion paper is interesting, but it provides no concrete solutions or recommendations. That said, the publication of this report is a clear sign that the FCA is going to expect more from companies, listed or not, as regards standards of behaviour within the financial services industry.

WOB hopes, and will push for, some form of forced reporting on company culture along the lines of the government’s gender pay gap reporting website. Transparency and consistent reporting are important, as it shines a spotlight on those companies doing well and those companies not apparently caring. 

Reading both papers, WOB found the FRC’s more useful, as it identified a number of areas for directors to be particularly vigilant about, whilst at the same time giving a list of questions to ask your executive directors, alongside a list of red flags. Here are a few images from the report that you might find useful.
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Please click on this link for the full FCA report => Link  & this Link for the FRC's report for a closer look at the images above!