The KPMG publication “Evolving Banking Regulations”- Part 5, in its February 2016 issue (https://home.kpmg.com/content/dam/kpmg/pdf/2016/02/evolving-banking-regulation-part-5.pdf) focuses on commercial and regulatory pressures affecting banks’ conduct and culture. Banks worldwide suffered from a loss of reputation and public trust due to significant losses caused to depositors and tax payers resulting from the global financial crisis.
The factors identified below, for causing cultural problems are generally applicable to any company which does not have a strong leadership to drive a good culture with genuinely held values, credibility and integrity.
• Inconsistent or inappropriate behaviours and decisions by senior leaders, which send a strong message about what is rewarded in a firm, regardless of the stated culture and values;
• Harmful norms, habits and established ways of working, encouraging employees (through cultural norms and incentives) to behave badly towards customers, and to exploit various conflicts of interest;
• A lack of clear corporate values, leaving employees unsure about the firm’s values and expected behaviours;
• Competing objectives, under which short-term financial performance dominates long-term sustainability, or a focus on revenue and profitability overrides consideration of the impact on customers, markets or wider consequences;
• Governance gaps, under which some employees are rewarded (or not penalised) for behaviours that are inconsistent with the stated values of the firm, for example where micro-cultures operate within specific groups or business lines according to different values, or where multiple management layers block clear lines to the firm’s high level values;
• Increased competition for skilled employees and increased employee mobility, which can generate a focus on short-term benchmarking for performance and compensation and inhibit the development of employee loyalty and the protection of the firm’s brand;
• Increasing complexity in the size and scope of firms, and in the types of products and services they offer; and
• Shifts in the business model, including a shift away from a client-based orientation that focuses on building long-term relationships to a transaction-based orientation that reduces customers to the role of a trading partner or counter party.