Culture counts: moving from remediation and restitution to innovation and growth
Culture counts. Doing things right is just as important as doing the right things. That’s one of the lessons that supervisors are drawing from the crisis and from the flaws in conduct and compliance that continue to emerge.
For banks, this lesson is timely. Fines and settlements for misconduct have eroded capital, and remediation has preoccupied management. This is depressing returns and impeding growth.
To create the financial and managerial capacity to pursue a growth agenda, banks have to improve their risk culture. A better culture can help reduce, perhaps even eliminate, costly compliance breaches. That in turn will preserve the bank’s reputation, conserve its capital, and free its management to focus on developing and implementing a strategy that will enable the bank to remain competitive.
Culture starts with the bank’s risk-management framework and its risk-appetite statement. They effectively set the tone from the top. To improve culture, supervisors are demanding that banks focus on four areas:
- Tone from the top: Does the bank’s C-suite, especially its CEO, consistently send the right message on risk? Does the board reinforce this message? Is it communicated effectively across the organization?
- Accountability: Does the bank hold senior managers accountable for managing risk effectively?
- Incentives: Do the bank’s incentives support effective risk management? Or do they encourage contrary behavior?
- Effective communications and challenge: Does the risk message get through? Are escalation paths clearly defined and understood? If the message is wrong, or the delivery goes awry, will someone point this out? If so, will s/he be heard and heeded? Making certain that this will be the case is one of the principal responsibilities of the bank’s board of directors.
Our latest briefing delves into how improving risk culture across these four dimensions, will help banks move from remediation and restitution to a growth agenda focused on innovation and transformation.
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