Since the 2008 global financial crisis, the financial services industry has wrestled with culture within banks and firms. Some parties assert culture substantially contributed to the crisis and was perhaps the primary factor. Politicians summoned the CEOs of big banks as well as regulatory leaders to explain what happened. We subsequently learned business practices had marginalized and/or disregarded compliance risk management in pursuit of profit without boundaries, customers without protection, and business deals without logic.
Many believe culture is all about conduct, but this assumes culture is measured by actions taken, decisions made, and business opportunities pursued. Of course, conduct is the output, but the culture sitting behind the conduct is based upon tolerance and, simultaneously, intolerance.
Recently, the shareholders of ING Bank NV in the Netherlands demanded the authorities open a criminal anti-money laundering (AML) investigation into the conduct of former CEO Ralph Hamers. In Australia, shareholders are pursuing class-action lawsuits against Westpac for AML failures. These actions reflect increasing intolerance. Essentially, shareholders are fed up with picking up the bill for the penalties—and banks and firms would be wise to take notice.
Where the problem lies
Historically, firms, regulators, executives, shareholders, and even governments have tolerated bad behavior, especially when it produces profits. This encourages more bad behavior, because traders, bankers, some executives, and even compliance officers determine they can get away with it.
Weak managers are more likely to permit misconduct and bullying because of a reluctance to confront, challenge, and prohibit such behavior. The tolerance of intimidation and fear risks a total breakdown of management and control, which can lead to a disaster or a financial crisis.
In 2015, the U.K. Financial Conduct Authority published enforcement notices against banks engaged in manipulating foreign exchange (FX) trading rates, within which online chats between traders were referenced. In one such chat, one trader stated, “If you ain’t cheating, you ain’t trying.” In another, a trader advised a new recruit, “Mess this up and sleep with one eye open at night.”
How bad is a firm’s culture when cheating is almost demanded? Or when new employees are made to feel threatened? Needless to say, it does not inspire morale.
A two-way street
Tolerance includes how employees feel about management style, career development, work-life balance, and compliance. Employees who are intimidated do not give the best of themselves and spend a lot of time looking for a way out. In contrast, employees who feel free, valued, and supported are more likely to thrive and become long-term valuable assets of a business.
Firms that encourage the abuse of customer relationships are equally more likely to abuse and exploit employees.
All these actions cause reactions, which in turn generate negative or positive outcomes. Such outcomes reflect the culture of a firm and equally reference tolerances that may be good or bad.
Collaboration and cooperation coexist alongside tolerance and understanding, but this can apply equally to good and bad conduct. Compliance professionals must confront one and encourage the other in order to ensure executives, shareholders, and colleagues can sleep soundly at night. Indeed, nothing less should be tolerated.
No comments yet