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Caterina Bulgarella: Why customer needs sink to the bottom of institutional priorities

The Banking Standards Board (BSB) recently released the results of its second annual culture assessment across a sample of firms in the UK banking sector.

Established after the fallout of the Libor scandal as part of a larger effort to rebuild trust in the British financial system, the BSB is a private entity open to all banks and building societies operating in the United Kingdom.

The culture assessment the BSB conducts across its members — twenty-five to date — provides a window into some of the culture assets (and liabilities) that shape ethical performance and risk across financial institutions in the UK.

The results of the BSB survey deserve attention for two reasons:

1. They provide insights that may be relevant for U.S. financial firms;

2. They highlight dynamics that further our understanding of how culture affects ethics and risk in organizations, beyond the banking sector.

The 2017/2018 BSB report highlights a variety of interesting findings, but a few stand out for their potential implications. In particular, only 32 percent of respondents unambiguously agreed that there is no conflict between their organization’s stated values and how their firm conducts business. Focus group findings from both the financial institutions with the largest gap between stated values and the way business is done, and those with the smallest gap, showed that the two groups did not differ with respect to whether leaders refer to and/or promote the organization’s values.

In both groupings, leaders talk the talk. However, only in firms where the gap was smallest did respondents report that leaders live the firm’s values rather than just pay lip service to them.

Importantly, in financial institutions in which the divide between stated values and the way business is done was largest, focus-group participants were twice as likely to note that their firm prioritizes immediate profit over customer outcomes. Even among respondents from financial institutions in which the gap was smallest, only a minority of focus-group participants reported that customer needs were an expressly given priority.

The BSB survey results make one thing clear: Though the UK banking sector is rebuilding trust, it still has a long way to go.

These insights are important because they underscore a disconnect that is a key source of ethical risk according to the Strategic Culture Framework. As discussed in a previous post, competing principles of conduct — for example, immediate profit over customer outcomes — and inconsistent leadership behavior fuel the divide between good words and bad acts. When the gap is further compounded by incentives that place excessive emphasis on business results, the dissonance between corporate values and how business is done in actuality is likely to trigger pressing trade-offs.

This is why the difference between who we aspire to be on our best day (stated values) vs. who we are every day (what the organization actually values) leads to high risk.

As research shows, people are more likely to take a shortcut based not on how much they have to gain, nor on the basis of the risk they incur, but as a result of two very different factors: What matters first is whether people experience a conflict of interest, and second, whether they have a way to rationalize their bad behavior.

These two factors are key aspects of most gaps between stated values and what the organization actually values. When strong business priorities are constantly reinforced via incentives and other cultural norms that remind employees of the negative personal consequences of not fulfilling such priorities, a conflict of interest between the individual and the organization is likely to ensue. The fact that the organization focuses on ethical principles in some of its conversations does nothing to diminish the intensity of the discourse around business demands. In fact, if a business says “we need to achieve our yearly targets or we’ll face dire consequences,” the do-or-die rationale behind this framing is enough to give employees plenty of fodder to rationalize bad conduct.

Indeed, competing priorities (e.g., profit vs. integrity, safety vs. efficiency, etc.) add to the complexity people routinely face at work because they require employees to reconcile difficult trade-offs. Furthermore, conflicting demands bring about uncertainty and ambiguity, as the meaning of each priority becomes less clear and its applicability less certain in the face of a competing goal. This is why the gap between stated values and what the organization actually values creates intensified pressure.

In this regard, it is not surprising that only 37 percent of participants in the BSB survey disagreed with the suggestion that they often feel under excessive pressure. And only 58 percent denied that working in their organization has a negative impact on their health and well-being.

From a practice standpoint, a gap between stated values and what the organization actually values is reflective of a culture in which the conflict between competing demands is ignored and/or not properly explored. The organization and its stakeholders are not exercising deeper self-awareness, challenging certain beliefs and/or practices in a more systematic way. Consistent with this point, the BSB assessment found that in firms where the gap between stated values and the way business is done is largest, new ideas are less likely to be supported and leaders are less likely to seek feedback from employees.

Finally, because competing demands are difficult to reconcile, they may also contribute to a culture of blame and low accountability, one in which people constantly experience the inherent challenge of getting everything right. And this too is consistent with some of the findings from the BSB survey. In particular, only 26 percent of respondents across the banking firms that were surveyed strongly agreed that senior leaders take responsibility, especially if things go wrong. And only a mere 19 percent of participants unequivocally rejected the statement that people in their organization try to avoid responsibility.

Clearly, the deeper the disconnect between who we are on our best day and who we are every day, the more difficult it is for people to affect and feel in control of behavioral practices in the organization.

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Caterina Bulgarella, Ph.D., pictured above, is a member of Ethical Systems’ core team and a collaborator of SAI Global. She’s a culture architect and ethics expert who advises senior leaders on culture change and ethical challenges. She can be contacted here.

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