Culture: the new corporate battlefield

Have you recently noticed an increase in job roles with the word “culture” in them?  One of my LinkedIn contacts landed a role as Head of People & Culture and it got me thinking: what is driving this increased interest in companies’ “culture”?

My conclusion: Competition.

Competition for new customers, customer loyalty, employee attraction, and retention. The way I see it is that the decade 2010-2020 was all about firms digitalising the customer journey (for certain, a good number are still on that path), but this decade (the 20s) will be about “honesty”.

This, perhaps, is an interesting concept, as it infers that prior to this decade firms were making conscious decisions to be – let us call it – less than totally honest and transparent in their dealings with customers (and perhaps to some extent, their employees).

So much so that in 2007 the Financial Services Authority (FSA) felt compelled to introduce legislation, referred to as TCF [1] (Treating Customers Fairly), to make the fair and honest treatment of customers a legal obligation!  *Subtext: if we do not make it a legal requirement, this lot won’t do it!

The legislation is, to some extent, effective in driving fairer customer outcomes, but the market and the regulator has by the mid-part of the next decade realised that it isn’t actually the right answer. It is certainly no coincidence that the FSA was (on April 1st, 2013) replaced by two separate organisations [2]: The Prudential Regulatory Authority (PRA) that now deals with market stability, and the Financial Conduct Authority (FCA) which deals with market behaviour.

In the case of the latter, it is certainly not coincidental that the name contains the word “conduct”; another word meaning behaviour. In other words, the regulator is setting out to ensure firms behave properly and that the best interests of customers are at the centre of each and every decision the firm makes.  As opposed to what has certainly happened in the past, when the best interests of customers were simply ignored for increased profit, market-share and commercial gain.

Since its inception the FSA (& PRA) has introduced a raft of new legislation, much of which is designed to increase consumer protection and “fairness”. Probably the single biggest piece from the FCA being the Senior Manager Certification Regime [3] which attempts to hold individual executives personally responsible for consumer detriment caused as a result of failure of the firm to abide by the regulations in place at the time.

Which brings me back to the original point: Culture.

Certainly, specific pieces of legislation like TCF will undoubtedly drive some market change for the better, but it will always fall short of the requirement to ensure the market is – and always will be – genuinely putting the consumer first. For this to occur, a firm (all firms in fact) must have a culture of treating customers fairly – always.

A culture where dishonesty and sharp practice is not just frowned upon, but shunned and ostracised; where sharp practice and deception always has negative consequences, and blame is apportioned, and punishment metered out; where tick-box compliance is seen for the sham that it is and the perpetrators (Senior Managers who allow this to happen) are personally held to account.

Right now, the FCA has failed in its macro-objective to materially enforce change into the market and create a culture of consumer first. The star piece of legislation, SM&CR, has seen only one prosecution in three years [4]. (One could, of course, draw the conclusion that this is because the legislation achieved its intended objective, but you would likely be a statistical anomaly if you believed that!).

On March 31st, 2021, the delayed Conduct Rules [5] become law and the FCA has stated that instead of focusing on whether the firm can evidence a tick in a box that generic training has occurred, the regulator plans to seek evidence that employees genuinely understand how this legislation impacts them in their role.

Inevitably, many firms will look at the prosecution success data (one so far in three years!) and conclude that it is a risk worth taking and carry-on box-ticking.

Other firms – the more enlightened ones – have worked out that at some point in the future the FCA will succeed in the mission to ensure the UK Financial Services market has a global-leading culture of consumer fairness. These firms have worked out that by genuinely investing in fostering and developing a culture of transparency, honesty and propriety is good for business. In fact, failing to do so damages their reputation, and brand reputation has never been more important than it is right now.

Consumers are so much better informed than they were just 10 years ago. “Switching” suppliers – once a rare occurrence in this market – has become commonplace and, in some consumer markets like car insurance, almost the default model. How much better would it be if customers stayed with you because they trusted you and knew that you genuinely had their back and would always put your individual interests first?

I for one now make decisions about financial products and services based on my interpretation of a supplier’s brand reputation. If I think the supplier has “stiffed” me, I dump them and choose another and share that experience with the world via social media.

But it goes beyond the customer. Customers are employees and vice-versa. How much better would it be if highly skilled staff deserted those firms who played lip-service to compliance and governance and instead sought out and remained loyal to the firms with a positive and honest culture?

The increase in roles containing the word “Culture” is, I suspect, recognition of the increasing importance firms are placing on their internal and external brand reputation. A clear signal that doing right by the customer is a natural and normal mindset for all in the enterprise – and good for business!

I suspect what we are witnessing isn’t a cultural revolution, rather a period of rapid evolution. And whilst the FCA will probably ultimately claim credit for the result, it will in fact have been achieved for the very same reason that it was necessary in the first place: profit.

Detrimental consumer practices existed only because they were more profitable. Reverse that paradigm and those detrimental practices and individuals who pedalled them will cease to exist.

Honesty will define the 20s. Brands who genuinely embrace it will flourish and brands that pay lip-service will flounder at the hands of consumers, well before the regulator gets to them.

Adrian Harvey

CEO
Elephants Don’t Forget

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Employee compliance in a Covid-19 world: what has changed?

The fact is that in most organisations employee controls and governance has materially reduced. Very few I suspect can substantiate that they have maintained the same level of vigilance and control now the workforce is WFH, let alone increased it as suggested here by the FCA. This paper explores what firms can do to reasonably protect themselves and meet the standards required of them, and poses the potentially contentious and unpopular question: “In reality, is it possible to allow all employees, regardless of their role, to WFH and maintain the required levels of governance?”

Sources:
[1] https://www.fca.org.uk/publication/archive/fca-tcf-mi-july2007.pdf
[2] https://www.bbc.co.uk/news/business-21987829
[3] https://www.fca.org.uk/publication/policy/guide-for-fca-solo-regulated-firms.pdf
[4] https://citywire.co.uk/wealth-manager/news/fca-secures-just-one-conviction-after-three-years-of-smcr/a1257588
[5] https://www.handbook.fca.org.uk/handbook/COCON.pdf