In May 2018 APRA released its final report of the Prudential Inquiry into the Commonwealth Bank of Australia. The reports major finding was that continued financial success had dulled the CBA’s sensitivity to signals of a deterioration of its risk profile, and especially non-financial risks. The inquiry pinpointed a number of culture themes including; a widespread sense of complacency, a reactive approach to dealing with risk, a failure to learn from experiences and mistakes, and an environment that prevented constructive criticism.

Arising from this inquiry APRA invited 36 institutions, from the banking, insurance, and superannuation sectors, to self-assess on the effectiveness of their own governance, accountability, and cultural practices. Releasing its information paper reflecting on these assessments in May 2019, APRA noted that institutions’ assessments of culture were not only less comprehensive than other components in the self-assessments, but many struggled to articulate their culture. This led APRA to suggest that there remains significant scope for improvement in this area and that it is unclear if some institutions can accurately determine whether their culture is effectively reinforcing desired behaviours, or what changes would be needed in order for it to do so.

In attempts to understand culture, APRA noted that institutions frequently overlooked behaviours in favour of formal mechanisms, and many felt that addressing processes and systems was the most effective way forward. This meant that only a minority of institutions identified the need to address behaviours such as fear of speaking up or effectively listening to customer complaints, and to see these avenues as key levers in driving organizational culture.

APRA also noted that some institutions took a “too hard mindset” approach to thinking about effecting cultural change, citing factors such as operational and regulatory complexity.

Overall, it would appear that many institutions are not well positioned to respond to APRA’s recommendation that they move from a reactive and complacent culture, to a culture which challenges personnel to strive for best practice in risk identification and remediation.

What’s so hard about culture?

Understanding, measuring, and effecting cultural change is indeed one of the more complex challenges facing most organizations. Too often there is a tendency to confuse culture with its outcomes – be they good or bad – or to focus on individual reports of personal beliefs, perceptions, or values. Getting culture right starts with understanding what culture is.

The key to understanding culture is to recognize that it is based on our perceptions of what others in our environment think or expect. Critically, this cannot be drawn from the kinds of questions commonly asked in pulse surveys or from which a ‘net promotor score’ may be derived. Asking people about how satisfied they are with their organization or their colleagues and managers tells us nothing about the culture of the organization – it merely tells us if people like the organization. Furthermore, simply deriving an average of these liking scores, tells us nothing about the shared meaning system that underpins how people behave when they walk through the door at work.

One way to get an effective assessment of culture is to use a Referent-Shift Consensus approach – which simply means asking employees what they think most others expect, believe, or value in their team, division, or across the entire organization. This approach allows us to get closer to what are the shared assumptions or values of a group, and what practices are viewed as normative and acceptable.

Why culture is its own animal.

This approach to measuring culture highlights something that is fundamental to our understanding of how cultures emerge, and critically how they can so easily go wrong. When people answer questions about what they think others value or think is acceptable, they are often basing their assessments on what they see other people doing – that is their behaviour. This is fine, except that people may not base their behaviour within an organization on what they personally value or see as acceptable, but rather base it on what they think are the norms, expectations, or standards set by those around them. Furthermore, people may often infer what others think they should do from what others actually do. This means that the informal values and ethical standards of an organization may be more often derived from unspoken assumptions based on observed behaviour as they are from formal policies or values statements.

As is hopefully clear, these insights show us that culture can easily become a system of self-reinforcing observed behaviours. When people come to work, they base their own behaviour on what they see others doing, while those others are doing exactly the same. Without clear communication around ethical standards and expectations, cultures can quickly become disconnected from what people themselves value, or from formal statements of organizational policies and standards.

How to achieve greater transparency?

How can organisations intervene to change culture and ensure it is aligned not only with the organizations policies, but also with the values of its employees. One approach is to make organizational policies more visible and accessible. This is important, but if it is not being reinforced by behaviour or the informal and unstated values and expectations within teams, divisions, or even across the entire organization, it will not have the desired impact.

Key to effecting change is building a culture which encourages open, honest conversations – where people can speak up about things they feel uncomfortable about. This is a key lever in shining light on what really are the key values or expectations of others within an organization. The difficulty is that conversations around questionable decision-making practices or interpersonal behaviour are often uncomfortable and employees need to be equipped with the skills to navigate these conversations effectively. They also need to feel that they are surrounded by a culture of psychological safety and their attempts to engage in open and honest communication is supported by leadership.

Influencing culture is about taking an early intervention proactive approach

Building and supporting speak up cultures is a key tool with which organizations can respond to APRA’s challenge to move from a reactive and complacent approach to dealing with risk. Empowering people across the organization to engage in honest and open communication is critical, not only to dealing with risk but for addressing a range of misconduct issues.

Currently best-practice models largely rely on whistleblowing or formal processes for dealing with misconduct or questionable practices in the workplace. Yet, these are largely adversarial and recent surveys indicate that upwards of 80% of people who speak up using these channels experience adverse consequences. Indeed, it is often the case that one or other parties to these disputes ends up leaving the organization.

Giving employees the capability to have difficult conversations early, and supporting them to do so, reduces the need to rely on whistleblowing or formal channels of reporting. It allows for grey area behaviour to be addressed directly and early. Critically, it also provides a proactive avenue through which to achieve cultural change, to improve transparency, and to bring unspoken norms and standards in line with organizational policies and employee values.

Empowering people to speak up effectively and collaboratively provides capacity to reduce a sense of complacency, allows for a proactive as opposed to reactive approach to dealing with risk, and is a key tool through which organizations can learn from experiences and mistakes and encourage constructive criticism.

If you are interested in creating an ethical culture in your workplace and developing ‘speak up’ capabilities across all staff, please contact brock@ethicsapplied.com.au or david@ethicsapplied.com.au (see www.ethicsapplied.com.au for more details)

Dr Brock Bastian

RESEARCHER, AUTHOR, & SPEAKER

Dr Brock Bastian is an internationally acclaimed researcher, author, and speaker who has spent the last 15 years seeking to understand the psychology of ethical decision-making.

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