Knowing Your Culture – The C Word In Financial Firms

Culture in financial services firms is – if not exactly a buzzword – more of a concern to regulators today than some of the themes that have historically preoccupied them.

Hardly surprising, given numerous failures of culture stretching back to the 1980s when governments across the world started deregulating markets: financial crises, bank collapses, huge losses, taxpayer bailouts, corporate and individual misdemeanours – many helped along the way by severe problems in the culture of the failing firms.

I’m not going to use this blog to re-hash war stories that have already had ample publicity and coverage over the decades.

Instead I want to focus on what culture in financial services firms means, partly informed by my own experiences past and current. How do firms formulate and package their culture? Can the language that a firm uses in its external and internal communications provide any leading indicators of its culture?

Can stakeholders such as regulators, depositors, investors, employees and suppliers identify and recognise the underlying culture of a firm, in the absence of adverse – but lagging – indicators such as critical losses, collapse or regulatory failure? What signs or behaviours might be revealing of a shallow or expedient culture?

The regulatory context

I started by mentioning the regulators. It is right that we allow them to set the context, given the huge amount of work they have done in recent years on the topic of culture.

In March 2018 the Financial Conduct Authority published a discussion paper on transforming culture in financial services: a collection of essays written by prominent academics, finance industry leaders, regulators and other commentators which aimed to encourage debate on what a good culture might look like, the role of regulation and incentives, and the need for changes in behaviour more broadly.

The FCA followed up this paper with a speech from Chief Executive Andrew Bailey which put more flesh on the FCA’s positioning on this emerging topic.

The overall message from the FCA was that:

Culture in financial services is widely accepted as a key root cause of the major conduct failings that have occurred within the industry in recent history. Given its impact, firms’ culture is a priority for the FCA. We expect firms to foster cultures which support the spirit of regulation in preventing harm to consumers and markets.

Themes and topics

The 28 essays covered four themes:

  1. Is there a right culture?
  2. Managing culture – the role of regulation
  3. The role of reward, capabilities and environment in driving behaviours
  4. Leading culture change

Within these themes, topics covered included: the use of behavioural science to guide incentives and cultural change; the need to go beyond leadership in embedding a change mindset in firms; the importance of trust, openness and learning; and using systems to assess and develop culture internally and externally.

By the way the DP did not constitute an official FCA consultation. Rather the FCA presented it as a basis for further debate on transforming culture in the sector; acting as a springboard to speed up the pace of change, build consensus and, ultimately, drive better outcomes for consumers and markets.

I recommend it as well worth a read, a refreshingly frank and outward-looking initiative from the regulators.


Given the range and depth of academic and practitioner expertise manifested in the 28 essays, I’m not going to make the mistake of trying to summarise them. Or attempt anything along the lines of a unified definition. It’s an exaggeration to say that the 28 essays include 28 different definitions of culture, but there’s a wide range of views and approaches.

What I can do is pull out some of the main ideas, to form a kind of definitional backdrop to my own views and experiences. Then I’ll highlight a few of the main things I’ve observed for myself on banking culture, in my corporate career and since.

Idiosyncratic, intangible, accountable

First, there is no one right way of doing things, no single template for a good culture. We need to allow firms to shape their own culture, around their individual business models, customer relationships, history and systems.

Second, culture is less tangible and measurable in financial services firms than it is in other industries, where health and safety considerations operate as a central feature of the business model.

Third, these elements of idiosyncrasy and intangibility make it all the important for leaders and other personnel to be individually accountable for their behaviour – as well as the firm being accountable, as an entity, from a regulatory and governance standpoint.

And fortunately individual and firm accountability are right at the heart of the Senior Managers & Certification Regime now in place for banks, insurance companies and other financial firms – I’ve covered this in an earlier blog and periodically in my quarterly Risk and Regulation Round-ups. The SM&CR forms a vital plank of regulatory support for the cultural changes that our industry seems to need so badly.

The value of values

One theme that emerges from the 28 essays on culture published in the FCA’s discussion paper is a firm’s core values.

In my university business writing class recently we had a lengthy debate about different elements of firms’ corporate branding and messaging, how these different elements relate to each other, and how they seek to reflect the values and culture of the firm.

Different elements we talked about included the firm’s vision, its mission statement, its unique selling point or USP (beloved of marketing professionals everywhere), its core values, its business strategy and plans, and its policy framework. Do any of these, singly or together, encapsulate the firm’s culture?

The vision thing

The debate was complicated by a lack of distinction between the elements. There seems to be no widely accepted clear definition, even in management theory or marketing circles, about what constitutes a strategic vision vs a USP vs a core values statement.

So we concluded that it’s hard for any of these elements of corporate branding and comms, on their own, to encapsulate the firm’s culture. Yes, they can provide signposts to what the firm values and expects. And they are often incorporated, explicitly or implicitly, in performance assessment and incentive structures.

But in the end actions and behaviours speak louder than words. The words do matter but less than the underlying behaviours. And there is limited evidence that the words actually determine behaviour in a causal way; rather they reflect the a priori expectations of management and shareholders.

Set in stone

When I was first learning about banking a hundred years ago, a wise old senior told me the reason why many commercial bank offices had the bank’s name carved definitively into the stone above their doors. It was actually a marketing device. A way of conveying permanence, solidity and reliability; sending a message that the bank would still be here, servicing its customers and depositors, after all the employees currently working there had long gone.

When in 2004 I went to work at the London office of a swish modern American investment bank, the words of the wise old owl came back to me. Because there, inscribed indelibly into a granite wall at my new employer’s office, were the core values of the firm, for all to see and abide by.


The message I picked up was: ‘Wow; these folks must be really serious about their values, or they wouldn’t have gone to the trouble of literally setting them in stone.’ It impressed me. I understood the values and tried to live and work by them every day I was there.

Still, as anyone who has played Scissors-Paper-Stone with their 8-year old child knows, paper beats stone. This is what happened in 2008, when my bank was taken over at the peak of the financial crisis: a paper acquisition obscuring the physical reality of the stone-carved values. Pretty soon the old granite wall was filled in and replaced. It was striking that the successor bank’s values did not get carved into the new wall. The idea of a permanent, indelible, grand representation of the taken-over bank’s values proved ephemeral. No more permanent than the dozens of visitor passes handed out by the reception desk each day.

Signifiers of culture?

Three messages emerge from this rather unsatisfactory story. The obvious one is that values can turn out less embedded than they appear: corporate activity can easily swamp or supersede them.

Second, as it turned out, the ‘replacement’ values (those of the successor bank) were not so different from the original bank’s values. But different enough to make the filling in of the wall necessary. Perhaps after all there is something in the idea of banks having a herd mentality. In the end they’re all pretty much the same. Take your pick and take your chances.

The final, perhaps stark message is that the values carved in stone were actually not an adequate indication or reflection of the old bank’s true underlying culture. The reality of that culture was that it led the bank to take risks with its capital which crystallised in an extreme way when the financial crisis hit; and ensured that the bank could not survive as a standalone business when the chips were really down.

Back to square one. I asked ‘can the words and sentences that a firm uses in its external and internal communications provide any leading indicators of its culture?’ The answer is no. Mission statements and values carved into the wall don’t do it. They are just so many words. Brands and value statements do not signify culture, at least in banking.

Incentives to behave

So, what does?

Several of the essays in the FCA discussion paper relate to the role of reward in driving behaviours. How do organisations motivate people to act, and what is the role of reward in driving behaviour?

I was very lucky in my 17 years in investment banking. I was never made redundant. And I thoroughly enjoyed all the jobs I did. All five of the firms I worked for were admirably professional, dynamic, ambitious, exciting places to work. And well paid. In 16 of the 17 years I received a discretionary bonus (the first year being the only exception). My bonuses were not huge by reportable City standards, but they were not negligible.

What this means is I have some first-hand experience of the impact on employee psychology that the race for bonuses encourages. And I have to say that overall – despite my positive remarks about all five of my investment banking employers, which I stand by – it is a detrimental effect.

The bad side of bonus culture

None of this is new, and the regulators are now firmly on the case. But in my experience a bonus culture undoubtedly encourages short-term thinking – inevitably a 12-month horizon – rather than long-term planning.

It encourages competitive behaviour rather than cooperation and teamwork. However team-structured the payout pools purport to be, in the end the paying firms differentiate by individual contribution; and everyone in the pool knows that.

And it encourages professional arrogance, given the size of payouts even for relatively junior professional staff and even in non revenue earning departments. People start to believe their own publicity and the messages the paying firms are giving out: ‘only the best will do for us.’

I recognise and accept charges of hypocrisy from any readers. I took the shilling for 16 consecutive years without complaining, or speaking out about the bonus culture. And even if I had formulated these views at the time, and been principled enough to voice them, this would have been career suicide. I was not prepared to contemplate that until later.

Deferral and restructuring

You have to give credit to the regulators, though, in the last few years. The governance, transparency and scrutiny of bonus structures has improved markedly. There is now much more balance to the factors being rewarded, including explicit rewards for good conduct and the converse.

There is also much more alignment to the performance of the employing firm, via minimum levels of share-related compensation as opposed to cash. If bad things happen later they will affect the firm’s share price and thus the value of the bonus.

And the introduction of strong deferral and clawback mechanisms mean that any misdemeanour coming to light in future, long after the bonus has hit its recipient’s bank account, might result in the regulator (taxpayer) being able to claw back cash from the recipient.

This is all good. But it’s not clear that it is enough to change the deeply embedded psychology of the annual bonus round which is still so much a part of the culture of many banks.

What are the signs?

At the start of this blog I asked two questions. (i) Can stakeholders identify and recognise the underlying culture of a firm, in the absence of adverse indicators such as critical losses, collapse or regulatory failure? (ii) What signs or behaviours might reveal a shallow or expedient culture?

The answers, from my experience, are as follows. (i) Yes, but it is not easy. (ii) A bonus scheme that continues to exert excessive influence on the psychology of its beneficiaries, even after all the regulatory enhancements of recent years.

An open culture

Another theme in the FCA discussion paper is the need for an open culture. One where people are prepared to speak up without fear if they see problems. Where the finding of problems or errors is actively celebrated, on grounds that a problem discovered is one that can be put right. Thus it will not hide and grow to the point where it causes terminal damage to the firm.

Some banks do no hold this enlightened view. At times in my career the (prospect of) discovery of problems or errors was characterised by fear and blame. It isn’t wholly surprising. Often it even seemed a function of the regulatory relationship and environment, which at times in my banking career seemed unduly hostile, pernickety and under-resourced.

Learn from your mistakes

Still, the openness of the culture to learning and improvement via the discovery and ‘celebration’ of problems and errors could have been better in most of the banks I worked in. As could the willingness to accept individual mistakes, on grounds of the personal learning and development that they engender.

And if we are looking for signs and behaviours that might reveal a more mature, more constructive culture, we might look at staff attitudes to functions like internal audit, operational risk, reverse stress testing, compliance and whistleblowing. Do managers treat these disciplines as completely embedded in the business model of the firm, essential to its wellbeing and even ultimate survival? Or do people simply pay lip service to them?

More radical indicators

I’ll finish with some personal views about more radical indicators of a good culture – which many financial firms are now taking very seriously and with great promise.

Let’s call it the ‘ethical’ culture. This label captures a wide range of initiatives and attitudes. From flexible working, to career development and training, to parental leave support, to green buildings, to diversity and tolerance across the board, to local community and volunteering initiatives, to enabling individual spiritual growth and mindfulness. At the heart of these indicators is the idea that non monetary reward is ultimately just as important to staff and customer wellbeing as bonuses and competitive pricing.

The value of ethics

Perhaps surprisingly, after so long in the industry, I take an uncynical view of the fact that so many firms are now actively developing an ethical culture as a mainstay of their wider business models and value systems. I think they really believe in it and some of them are starting to do it really well.

Long may this continue. And long may this ‘ethical’ attitude permeate the other indicators of culture I have talked about in this blog.

If this happens, the more shallow and expedient elements of culture which still predominate in some firms will be subsumed, deepened and enriched by a tide of ethical behaviours and attitudes. Ultimately, creating more wellbeing – for staff, for customers, for firms themselves, and for the markets and communities those of us working in finance seek to serve.

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