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Is culture a springboard for success or an anchor weighing you down? A deeper read on the Financial Services Royal Commission report
Is culture a springboard for success or an anchor weighing you down? A deeper read on the Financial Services Royal Commission report
What does this now mean?What do we know about the Hayne report?
What has been said?
How do we reimagine
entity oversight?
How do we define
and measure culture?
How do we ensure we
have the right people?
How can our leaders
inspire in the moments that
matter?
How are performance and reward
better aligned?
Culture, governance and remuneration march togetherCommissioner Hayne, 2019
Leadership always matters, and banks must embed conduct and culture messages and expectations from the top downG30, Banking Conduct and Culture: A Permanent Mindset Change, November 2018
In all aspects of Board governance, ‘quantity’ of information is not the same as ‘quality’ of informationCommissioner Hayne, 2019
Remuneration and incentives tell staff what the entity valuesCommissioner Hayne, 2019
61%Banking
9%Financial Advice
12%Superannuation
10,323 submissions
Top submissions:
24 referrals to regulatorsrecommendations
76
Culture, governance
and remuneration
1A deeper read on the Hayne report || Is culture a springboard for success or an anchor weighing you down?
Is culture the problem and the solution?Do culture, governance and remuneration really march to the same drumbeat?
Good people can’t thrive in a poor system. Lasting culture change requires a shift in the organisational system and the behaviours of individuals operating within it.
We support Hayne’s contention that the cultural levers of change are inextricably linked to one another, and that to address one in isolation of the others would undermine the effectiveness of the response.
Managing culture is not a one-off event, but a continuous and ongoing effort that must be integrated into day-to-day business operations
Key questions • Do you have a structured, organisation-
wide view of current culture?• Is your current culture supporting you to
meet your purpose and strategy?• Are you clear on your desired culture, and
has the Board endorsed this target?• To what degree are you measuring and
reporting culture to your leaders?• To what degree do you perceive cultural
tension in your organisation?
Our approachTo achieve and sustain the desired culture, which supports strategy and performance, organisations must address: the levers that influence culture; the system within which people at all levels are operating; and, individuals and their behaviours. EY’s culture change methodology facilitates this need:• Culture Definition: We support organisations
to define a cultural ambition aligned to purpose & strategy.
• Culture Assessment: We diagnose and assess the levers of culture.
• Culture Transformation: We support organisations to achieve their desired culture based on the transformation of their cultural levers.
• Culture Reporting: We have developed a Culture Dashboard for Boards and executives to monitor the cultural health of the organisation in a timely manner.
So what does the Hayne report really mean for organisations?Quite simply it means action and it means change – coordinated, fundamental change. A cursory, compliance-driven or tick-box response cannot cut it this time. Hayne has questioned the fundamental pillars upon which these organisations are built. He has called into question what is valued, how organisations are governed, what is produced, how products are sold, and how individuals can be held to account. The response must match the magnitude of the challenges exposed.To be successful in this transformation, we must look at the primary levers that shape culture, and the complex interplay between them, as illustrated.
1. Start at the top, and don’t stop there.Boards and executives have ultimate accountability for conduct and culture, but cascading cultural responsibility at all levels is a must in the post-Hayne era.
2. Redefining relationships.Boards, executives and regulators are waking up to a new era of governance, accountability and oversight of culture and its drivers.
3. The good, the bad and the ugly.What is measured, rewarded and penalised has never been more critical. Performance, its consequences, and reward are well and truly under the spotlight.
4. Building for the future.We are in a complex and evolving workforce environment. The importance of having the right number of people, in the right roles with the right skills and integrity is now clear.
Principles• Corporate cultures that are anchored
to purpose and support strategy are consciously created and intentional.
• Culture is created over time, by the behaviours of leaders and staff and the organisational systems they build.
• Culture, governance, remuneration and capability reinforce each other.
• Culture is driven from the top, leaders must be the architects and accountable for cultural change.
• Culture is a key determinant of business performance.
• Culture impacts productivity, staff and customer engagement.
Taking actionThe vast majority of those working in the Financial Services sector did not set out to deliberately engage in misconduct. The Commission heard of a more ethical cultural intent (to obey the law and act in the interests of customers) being diluted and in a small number of cases plainly ignored to the detriment of customers. Historically this may have been put down to roguish behaviour of a minority of ‘bad apples’. However, we would suggest the primary levers of culture in the Financial Services sector have been misaligned for some time. The Commissioner has now given the sector the mandate to re-set a path towards trust and integrity and to re-balance cultural levers.
Conduct
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Does your governance support purpose, culture and accountability?
What messages are your leaders sending (or not sending) to your people?
HR’s role is to embed strong culture through aligned and integrated people programs and governance.
Senior leaders set the tone from the top, and leadership is needed at all levels.
Leadership always matters, and banks must embed conduct and culture messages and expectations from the top down, through middle management down to the teller in their organisation.
Key questions • How integrated are your people
programs, processes and governance with purpose and culture?
• What assurance can you provide to the Board regarding culture and conduct?
• Have you considered how BEAR accountability processes can improve your governance?
Key questions • What tone is being set from the top?• Does your senior leadership team
model integrity and demand the right behaviours across the organisation?
• What are the cultural risks and vulnerabilities that senior leaders need to manage?
Principles• Strong governance starts with the Board
and executives, and must be reflected throughout the organisation.
• Clarity in roles, structures and decision making frameworks helps drive strong oversight, management and accountability.
• Ethical leadership and strong codes of conduct can enhance professionalism and good customer outcomes.
Our approach• Test governance alignment to purpose and
strategy.• Develop, implement and support actions to
address the governance gaps.• Review and monitor Board effectiveness,
culture, skills and reporting.• Diagnose governance risks inherent in
organisational structures.• Develop and monitor BEAR accountability
matrices and statements.• Embed ethical decision making frameworks.
Principles• Leaders at all levels must align their
leadership style and behaviour with the cultural tone set from the top.
• Every communication, interaction and decision from leaders sends (or doesn’t send) a signal about what is important within the organisation.
• Leaders need to develop the capacity to work constructively with others to address the most critical leadership challenges.
Our approach• Demonstrate shared clarity by articulating
the desired culture. • Embed the organisation’s purpose and values
in day-to-day behaviours. • Cultivate a capacity for self-awareness and
an understanding of psychological safety.
Too often, it was unclear who… was accountable for what. Without clear lines of accountability, consequences were not applied, and outstanding issues were left unresolved.
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How is your workforce equipped and organised to best deliver on your purpose?
If “one size does not fit all”, how do you measure and assess good performance?
Having the right number of people, in the right roles with the right skills and integrity has never been so critical.
While performance and reward structures need refinement, the way in which they are implemented to support culture and governance requires rapid transformation.
Remuneration both affects and reflects culture…poor remuneration and incentive programs can lead, and have led, to poor customer outcomes.
In the end, good management, at all levels, is the best and most effective way to obtain the best results.
Key questions • Have you got the people you need to
achieve your purpose and uphold your desired culture?
• How do you select, develop and manage a capable labour supply whilst being competitive in the market?
• Have your people got the capabilities and learning agility they need to successfully perform now and into the future?
• Are you equipping your people with the future capabilities they need in a digital age?
Key questions • Are you getting what you’re paying for?
Are you guessing, or do you know? What would your customers say about how you pay people?
• What does “good performance” look like? Does “good” incorporate non-financial performance and risk, and link to role expectations, career development, recognition and reward?
• Are your people acting ethically and professionally? When faced with a tough choice, how do you know your frameworks encourage the right behaviours and support your culture?
• Can you quickly and easily provide your leaders with the right performance and reward insights?
Principles• The future workforce model will be distinctly
different from today – new structures, behaviours and capabilities are required.
• Front-line employees face a new set of behavioural challenges; mid-level managers require greater support to lead.
• Consider change capability, learning ability and integrity and values alignment in building your workforce.
Our approach• Invest in strategic workforce planning which
is future-focused and includes consideration of technology.
• Assess and develop capability, with a focus on technical and non-technical skills.
• Create a learning culture, where ongoing learning for all is expected and rewarded.
Principles• Implementing design changes, linked to
purpose, strategy and culture, are important. However, don’t just assess and refine structures, such as clawback. Also review operations and invest in the change process.
• Addressing the “how”, not just the “what”, requires good performance and career management. The focus on non-financial performance and risk, particularly customer outcomes, needs to be enhanced.
• Assurance of performance and assessing the effectiveness of reward should be built into the operation of frameworks.
• Accountability and governance must be reinforced through the performance and reward frameworks. Focus on quality insights provided to leaders, rather than quantity of data.
Our approach• Use evidence to measure, assess and
redesign frameworks – linking to purpose, strategy and desired culture.
• Invest in defining, measuring, analysing and reporting non-financial performance and risk.
• Build performance assurance, reward effectiveness, and a continuous improvement mindset into the ‘day-to-day’.
• Provide the right performance, reward and culture insights – not just data – at the right time to enhance governance.
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Contacts Partners, People Advisory Services
Notes
ANNE GIUGNI+61 418 527 [email protected]
ADAM CANWELL+61 499 158 [email protected]
JOANNE AVASTI+61 415 298 014 [email protected]
ROHAN CONNORS+61 404 610 [email protected]
JULIET ANDREWS+61 404 812 [email protected]
PETER FOX+61 412 380 [email protected]
MARK PHILLIPS+61 412 911 [email protected]
MIKE HOGAN+61 408 488 [email protected]
SARAH ARNOLD+61 411 511 [email protected]
BRUNO CECCHINI+61 414 278 [email protected]
CHRIS GALWAY+61 414 909 [email protected]
PAUL MEIJER+61 400 147 [email protected]
DAVID WERNER+61 408 682 953 [email protected]
SONIA SHARP+61 418 227 [email protected]
YOLANDE FOORD+61 424 027 [email protected]
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About EY’s People Advisory Services As the world continues to be impacted by globalization, demographics, technology, innovation and regulation, organizations are under pressure to adapt quickly and build agile people cultures that respond to these disruptive forces. EY People Advisory Services believes a better working world is helping our clients harness their people agenda — the right people, with the right capabilities, in the right place, for the right cost, doing the right things.
We work globally and collaborate to bring you professional teams to address complex issues relating to organization transformation, end-to-end employee lifecycles, effective talent deployment and mobility, gaining value from evolving and virtual workforces, and the changing role of HR in support of business strategy. Our EY professionals ask better questions and work with clients to create holistic, innovative answers that deliver quality results.
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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.
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