What Is Culture, And Why Is It Important In Financial Services?
<p style="text-align: justify;">The role of culture in financial institutions has quickly moved up on the agenda of financial regulators globally. In September, the Monetary Authority of Singapore, which is one of the leading financial regulators in the world, published two papers that reinforce the importance of organizational culture. The first paper focuses on nine outcomes the authority believes all financial institutions should work toward, while the second paper outlines five outcomes financial institutions should achieve to strengthen accountability and promote ethical behaviour.</p><p style="text-align: justify;">Beyond the financial services industry, culture is being scrutinized and revolutionized more than ever before. From entertainment to the technology industry, companies are reorienting around new workplace standards in the wake of movements such as #MeToo and due to the trust issues plaguing tech behemoths, such as Google and Facebook. To a certain extent, diversity, equity and inclusion initiatives to bring new people and perspectives to company culture will help ensure the right culture develops and stays in place.</p><p style="text-align: justify;"> But what exactly is culture, and why is it important in financial services and other industries?</p><p style="text-align: justify;">On the first question, William Dudley, former chief executive of the Federal Reserve Bank of New York, put it best when he described culture as "the implicit norms that guide behaviour in the absence of regulations or compliance rules." Andrew Bailey, the governor of the Bank of England, noted that culture is "everywhere and nowhere." By that he was recognizing the elusive nature of culture — how almost everything that happens in a financial institution affects its culture, and yet there is no distinctive thing called "culture." He believes culture is an outcome rather than an input and that a good culture will elicit good behaviour.</p><p style="text-align: justify;">On the second question, there are several reasons why culture is important for a financial institution. First, a positive culture will enhance a financial institution's reputation with its customers, its employees and its regulators. This promotes customer loyalty, which can in turn help the institution to attract even more customers by loyal customers driving referral traffic through word-of-mouth marketing. The right culture can also attract and retain highly qualified talent that values positivity and also reduce negative behaviour and staff turnover. It also decreases the risk of regulatory scrutiny, which in turn diminishes the risk of fines and other related costs.</p><p style="text-align: justify;">A good culture reduces the risk of misconduct as well. This is important because misconduct is an expensive lesson. From 2009 to 2017, regulators in the United States and Europe imposed $342 billion in fines on banks for conduct-related breaches.</p><p style="text-align: justify;">Third, besides regulatory benefits, the right culture promotes positive changes with more innovation and new products, which can drive productivity or expand the customer base of a financial institution. This benefit has taken more urgency in recent times. John Chambers, the former chief executive of Cisco, issued a stark warning to business leaders this year when he forecast that "40% to 50% of the Fortune 500 will not exist in a decade." According to him, the current crisis is a time for companies to either disrupt or get disrupted. I believe changes can only occur when an institution already has an innovative culture in place.</p><p style="text-align: justify;">While it remains to be seen how effective papers that recommend financial institutions and other industries adopt the "correct" culture will be, there is no question that a positive, innovative culture is critical to the continued success of any company. This is a continuous exercise for every institution, as their industry and organization will change over time, and one must always keep up the work of implementing the right culture.</p><p style="text-align: justify;"> </p>