The financial-services industry remains one of the most heavily scrutinised sectors in the world. Banks are under the microscope of regulators—and regulators are in the firing line of governments and media.
In recent years, there has been change like none other to the mechanisms and processes that were widely seen as acceptable but are now considered highly questionable, if not illegal. Banks have done well to adapt in a relatively short space of time, yet the industry still has more to do. Organisations are dramatically rethinking the types of skill and talent they need and the types of business they conduct in the new world of financial services.
Understanding the role of culture
It’s hard to talk about culture without discussing the issue of remuneration. Can banks still offer performance-related bonuses and expect positive culture? The implementation of the deferred-compensation approach has taken a bold step to improve the culture around rewarding talent in the banking industry.
Despite the FCA (Financial Conduct Authority) dropping its plans to undertake a formal review of banking culture (on the basis that all firms are different), it’s still vital that financial-services organisations manage and control their corporate culture and ensure that it reflects the identified values of the business at every level. In order to achieve this goal, firms will need to undertake a thorough analysis of how its business culture is perceived, and do so on a frequent basis. Where there are discrepancies, businesses must react to these with both immediate fixes and long-term solutions.
Culture is a fluid and ever-changing factor that needs to be monitored, particularly where there is great change, such as a movement in the leadership team, an acquisition, a headcount reduction or an office transfer. When individuals or teams are asked to work in other countries, there can often be some significant cultural differences that will cause friction if not addressed. Human Resources directors and the board must address and closely monitor culture in order to benefit from investment, staff motivation, profitability and, ultimately, the bottom line.
The true cost of good staff
The economy remains unpredictable, and high-quality talent in the financial-services sector remains sought after to ensure businesses are prepared and ready for future trends and developments. However, many firms are finding it hard to attract the right candidates—and also failing to comprehend the true cost of finding the “right hire”.
Deferred compensation has become much more commonplace, with exceptional candidates dictating their expectations in relation to their remuneration, particularly when it comes to performance-related pay. This increasing trend means that significant and unexpected expense is often incurred.
As such, businesses need to understand how to attract employees in ways that go beyond the pay packet, and explore how culture and the company itself can be an attractive proposition. Often it is those businesses that have an aggressive culture who find themselves paying a premium, whereas those who “do the right thing” find it significantly easier to attract top talent, and without additional and unexpected costs.
Firms need to adopt this proactive approach in order to pre-empt and prepare for any regulatory changes that the future may bring. Until this point, the majority of businesses have retrospectively implemented mechanisms and structures in order to address emerging regulations as they appear.
We don’t yet know how Andrew Bailey, the new CEO of the FCA, will treat the culture challenge in UK financial services. One thing is sure—Mr Bailey will need to navigate a complex stakeholder map to be considered a success from all sides. The strategic direction is to develop a financial-services environment that is a powerful, respected force within the UK economy, while rebuilding the UK public’s perception of the industry. Indeed, the FCA itself must maintain the highest standards as a reflection of the sector’s culture.
Highlighting the revolutionary new approach being asked of the banking sector and willingness of regulators to actively discipline illicit activity is the Senior Managers Regime (SMR). The FCA’s decision to pursue a “guilty until proven innocent” culture has now been diluted so they now have to prove that the senior manager has not carried out his or her duty of responsibility. However, this will still have significant implications for the way senior managers understand and assess risk. If senior managers are to be armed with appropriate information needed to comply with the regulation, having access to good quality management information has never been more critical. Without this, it becomes almost impossible to identify focus areas that can cause issues and prevent banks from becoming compliant with SMR.
Compliance with regulation is the first step to achieving a successful culture across the entire business. However, companies need to go further to build solid employee allegiances and relationships with the company, which will be reflected in the services provided, reputations and results generated. Ultimately, if clients and the wider industry have trust in an organisation, client loyalty will follow and profitability will increase.