Overview: UK Banking Standards Board Annual review of bank culture 2018/2019

The UK Banking Standards Board has released its third annual review of bank culture.  The review is the 'largest assessment of behaviour, competence and culture in banking not only in the UK, but globally'. 

Key takeouts

Largest of its kind: According to the Banking Standards Board (BSB), the report is the 'largest assessment of behaviour, competence and culture in banking not only in the UK, but globally'. The survey included: 26 banks and building societies across the UK and more than 72,024 people across all business areas and levels of seniority participated in the 2018 Assessment.

Broader relevance? Though the assessment is designed with the banking sector in mind, the BSB suggests that the issues explored are not sector or jurisdiction specific and therefore may have broader significance. 

Building strong culture is a long/ongoing task: Despite investment and continued focus on improving culture, the report concludes that there was minimal progress achieved in 2018 (as compared with last year) due to the scale and the nature of the task.

Introduction

The UK Banking Standards Board (BSB) has released its third annual assessment of bank culture: Annual Review 2018/2019. According to the BSB, the report is the 'largest assessment of behaviour, competence and culture in banking not only in the UK, but globally'.

The assessment examines the extent to which characteristics associated with 'good organisational culture' — that is, 'cultures that produce good outcomes for a firm’s customers, clients or members, employees, the economy and society as a whole' — are demonstrated by and within firms'. Though the assessment is designed with the banking sector in mind, the BSB suggests that as the issues explored are not sector or jurisdiction specific they may have broader significance. Below is a high level overview of the report findings and a brief description of the indicators the BSB used, the outcomes based approach it took to assess progress.

Some Key Findings

Findings overall — little improvement in 2018?

  • Little overall change (in aggregate) in 2018? Overall, despite continued investment (time/resources) in managing culture, there was little improvement across firms as a whole, in 2018. Having said this, 2017 improvements were maintained. The BSB also notes that the aggregate picture is not necessarily representative of each individual firm progress.
  • Perseverance required? Commenting on the results, BSB CEO Alison Cottrell writes that 'We cannot infer from these results that firms "tried harder" in 2017 or took culture less seriously in 2018'. Rather, the report suggests the lack of progress could be due to a number of causes including: that 'easy wins' have been exhausted; some initiatives in managing culture may have been less effective than others; and/or more time may be needed for initiatives to come to fruition. The report urges banks and society to 'persevere in determining what does and does not work'.
  • Evidence of continuing commitment to raising standards: The report states that the scale of participation, as well as firms’ engagement with the BSB’s work more broadly, is evidence of a 'strong commitment on the part of member firms to continuous improvement and to raising standards across the sector'.

Rebuilding trust takes time?

Commenting on the findings, BSB Chair Dame Colette Bowe said that the findings demonstrate the scale and the nature of the task. 'From the many discussions we have had with firms, we would say: these results are telling us that, making continuing significant changes to the method of operation of large and/or long-established businesses is a hard slog, and that many firms are in the hard yards of achieving progress in improving their culture. Rebuilding trust, and making themselves worthy of being trusted, is a long job.'

More detailed findings 2018/2019

  • Improvement in perceptions of leaders — leaders perceived to be taking responsibility and as more credible: The largest 'sustained improvement' relates to increased perception that senior leaders taking responsibility (especially where things go wrong). In 2016, 58% of employees said that senior leaders took responsibility. This increased to 65% in 2017 and to 66% in 2018. There was also improvement in relation to a question on believing that leaders mean what they say. This is consistent with and reflective of the 'considerable regulatory focus on responsibility and leadership in recent years' BSB Chair Dame Colette Bowe writes. For example, the introduction of the Senior Managers and Certification Regime.
  • Progress towards creating a speak up culture is 'much less positive':
    • Over 60% of employees would speak up: Of those employees who said in 2018 that they had wanted over the past year to raise a concern about something at work, 63% said that they had done so.
    • Firms aren't listening? 40% of those who spoke up said, indicated that they had not felt listened to or taken seriously, and a further 19% were unsure. The BSB observes that 'the experience of those who do speak out about something may affect the willingness of others to do likewise (whether that experience is relayed directly or observed at a distance). A firm that wishes to encourage people to say when something is going wrong or could be improved, needs to demonstrate beyond doubt — and keep on demonstrating — that it welcomes feedback and is prepared to listen to it'.
    • Less likely to speak up about harassment, bullying or discrimination than other issues? The BSB also observes that individuals are more likely to challenge behaviour or practices that might damage the firm, its customers or markets than they are to speak up about bullying, discrimination or harassment. The BSB suggests that 'firms need to consider how to encourage speaking up on both organisational issues and personal concerns, recognising in particular the importance of how the firm itself listens and responds, and is seen to listen and respond'.
    • Why not speak up? According to the BSB, there is a 'mismatch' within individual firms between the extent to which those who choose not to speak up, think that they would be listened to and the experience of those who do speak up. According to the BSB's analysis, these 'mismatches' can run in either direction — that is, the reality may be better, or worse, than the expectation.
  • 'Perceptions of equality of opportunity between men and women are strongly influenced by the leadership, or failure to exercise leadership, in this area by senior people in the firm': Perceptions of equality of opportunity between men and women are more positive in business areas where leaders are seen to take responsibility for the need to improve. On average, 83% of men and 80% of women said that opportunities at their firm were equal irrespective of gender. Employees in most focus groups noted the limited representation of women in senior positions at their firm. Other common observations were that: a) taking maternity or paternity leave hindered career progression; b) policies to promote gender equality were applied inconsistently across the firm; and c) their firm’s culture was itself a barrier to gender equality.
  • 25% of banking employees say that working at their firm has a negative impact on their health and wellbeing; a proportion that has barely changed over three years, notwithstanding the attention that firms have been giving this issue. The most common reasons given for this were: excessive workload, the pressure of expectations and a lack of resources. Issues relating to line management, working relationships and the physical working environment were also frequently mentioned. The BSB writes that issues 'around wellbeing and stress matter if we want and expect people to be able to exercise judgement, manage risk, take decisions and demonstrate high standards of behaviour and competence at work'.
  • Excessive complexity is a barrier to being able to serve customers well: Customer-facing employees identified the complexity of internal systems and processes as the main barrier to being able to serve customers well with 55% of employees said that their firm’s internal processes and practices were a barrier to continuous improvement. This proportion has shown little change over the three years of the survey.

Next steps? Three key focus areas for the coming year

The BSB identified the following three key themes as areas of focus for the coming year:

  1. decision making: the BSB will use the survey and other approaches to better understand the connection between decision making and a firm's social purpose and outcomes
  2. technology and culture — 'digging down into the perspectives of the people who design and manage technology for our member firms and their customers or members'.
  3. speaking up and listening — 'collaborative work to understand best practice and to share it'.

In addition, the BSB will continue to focus on topics such as wellbeing, the question of what ‘good’ looks like for consumers of banking services, and the effective implementation of the Certification Regime.

Broader Relevance?

Though the assessment is designed with the banking sector in mind, the BSB suggests that the issues explored are not sector or jurisdiction specific and therefore may have broader significance. This view appears to be shared by Professor Emeritus of Philosophy at Cambridge University Baroness Onora O’Neill who writes: 'The standard that matters most in banking and financial services is not trust, but trustworthiness. Being trustworthy has three elements; honesty, reliability and competence. Regulation alone cannot produce trustworthiness. That responsibility sits with firms themselves in the organisational cultures they create, manage or tolerate. The work of the Banking Standards Board – providing independent support and challenge and identifying and sharing good practice – should be part of the toolkit of any firm that takes its culture seriously.'

Implications and relevance for Australian firms? Media reports suggest that the report may have relevance in the Australian context, especially in the in the wake of the Financial Services Royal Commission and the need to 'rebuild trust' in the sector. 'It's worth reflecting on what banks in the UK are doing. And questioning whether local financial institutions fully appreciate the mammoth task ahead' The AFR suggests.

  • The survey assesses rather than 'ranks' culture: The BSB comments that the fact that 'culture does not lend itself to measurement…does not mean that it cannot or should not  be assessed and appraised in order to manage it more effectively'.  Having said this, the assessment does not, measure or 'rank' culture directly as every organisation will have its own individual culture(s)) and there is no one 'model culture' against which others can be measured/ranked.   Rather, the assessment is intended to provide feedback and guidance to assist in managing culture based on 'outcomes' – ' 'Culture is important, in other words, not for its own sake but because of what results from it'.
  • Measuring 'outcomes' — assessment against nine characteristics: The survey (underpinning the report) asks how far a firm demonstrates the following characteristics: 1) competence; reliability; responsiveness; personal/organisational resilience; accountability; openness; respect; and honesty.  'A firm that demonstrates these to a high degree would, we would argue, be better equipped and motivated to serve its customers, clients and members' better than one in which the characteristics were lacking.
  • Changes in 2018?  The core survey questions are consistent over time and the responses comparable across firms and business areas, enabling progress to be assessed in both absolute and relative terms. 2018 is the first year the survey: was run outside the UK banking sector, both with the non-UK banking operations of some member firms, and with member firm non-banking operations in the UK.  The survey also includes banks in Ireland, providing a first year of baseline data for these firms and for the newly established Irish Banking Culture Board.   2018 was also the first year the survey contained one-off questions relating to speaking up, wellbeing and equality of opportunity by gender as well as customer focus.  These themes were explored in more detail through focus groups with 837 employees, asking questions of boards, and talking individually with 71 senior executives and non-executive board members.

[Sources: UK Banking Standards Board media release 01/04/2019Banking Standards Board Annual Review 2018/2019; [registration required] The AFR 04/03/201904/03/201903/04/2019]