Recently we have seen a current CEO of a global bank, Jess Staley of Barclays, censured for using external intelligence agencies to identify a whistle-blower. Meanwhile at Wells Fargo, the damning report on their sales practices, indicates a decline in ethical standards which appears to have been known about and ignored by senior management for over a decade.

This brings us back again to two questions we have been asking in posts over the last few weeks: does culture matter and does it impact the corporate bottom line? We would answer both questions with an emphatic yes. It also poses an important question: Is the way you choose what to measure and manage driving company behaviours in the wrong direction?

A piece in the FT last year, revealed that the number of people in compliance employed by CitiGroup exceeded the entire workforce of Lehman’s when it collapsed. (1) Citigroup are not alone in building significant compliance departments with very substantial impact on banks’ bottom lines. However, having a massive police force, is no substitute for having a social contract where people co-operate with and value the rule of law.

Manufacturing industry recognised over 40 years ago that having quality control at the end of the production line did not achieve the outcomes that they were seeking. Quality needed to become everyone’s responsibility. In the same way the extractive industries have worked hard to ensure that safety is very much the personal responsibility of every individual and not just some designated function. However, banking seems to find it hard to make the connection between its management, its employees and company values, behaviours and culture.

A lesson from Tesco

“Tesco’s accounting scandal has cost far more than the £214m in fines and compensation payments …The affair burst into public view in 2014 with the revelation that Britain’s biggest grocer had overstated its profits. But it began years earlier, when executives — under pressure to meet demanding financial targets — began losing sight of the customers from whom that money was ultimately earned.”(2)

Numbers can be very seductive. In the case of Tesco the old adage, “what gets measured gets managed” could not have had more severe consequences. So it might be a good idea to ask, What are we measuring and why is this important?

“The numbers speak for themselves”. Really? At the very least they need context. It is often when we allow the numbers to speak for themselves that organisations lose a sense of who they are and forget that they are judged in the real world on many things besides performance. How they actually do business can be as important as what they do in business.

Culture may be harder to measure and express in monetary value, but it certainly has a bottom line impact. The recent takeover attempt of Unilever by 3G and Warren Buffett could have been concluded, it was not the numbers that stood in the way. The numbers did speak for themselves, but, so, unfortunately for the acquirers, did their track record as purchasers and subsequent managers of recently acquired assets. So too, did Unilever’s record and culture of strong ethical management.

The Tesco story has been well rehearsed in the media – a fall from grace, just deserts etc. But at the individual level decisions were taken by human beings who thought they would be seen to be delivering because they were meeting targets. Much the same happened at VW, BP, Dentsu, the UK clearing banks with PPI and Wells Fargo.

People behave the way they are managed. It is very rare that people start working in ways that are inimical to how their organisation describes itself. In business, there are few out and out rogues. Mostly people decide to do things because those things are consonant with the working atmosphere in which they find themselves. The belief that “I will be in trouble if I don’t deliver or exceed this quarter’s numbers” or “I know that’s what the boss said, but I have been around long enough to know that what he actually means is……….” has enormous power. When you say something to your people, what do they believe you really mean? Do they hear the words around compliance but believe that what you are actually saying is “just get the job done at any cost”?

Organisations ignore culture at their peril. Do you know what your people believe are the hidden rules that make your organisation work? Are these beliefs helping or hindering optimal performance? In some organisations, culture is perceived as a “soft” issue, unrelated to the hard-nosed stuff of making money. But as we can see getting it wrong can be very expensive indeed. Is this something Tesco, VW and the others have recognised as they finalise the pay-outs in various jurisdictions?  Or will it just be business as usual til the next debacle?

(1) John Kay, “Complexity, not size, is the real danger in banking”  Financial Times 12 April 2016

(2) Caroline Binham and Mark Vandevelde, “Cost of Tesco accounting scandal goes beyond fines” Financial Times 29 March 2017

Authors: Ian McDermott and Richard Lewis