Mary Clarke looks at how banks can more effectively manage their people risk by paying more attention to employee behaviour. She argues that if banks are to regain public trust and restore their damaged reputations they must drive a positive culture change
The Bank of England’s Governor Mark Carney declared that the "Age of Irresponsibility" in banking was over in a speech focusing on ethics at Mansion House on 11 June 2015.
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Carney said that the various banking scandals of recent years had revealed standards of weak behaviour, poor management and poor personal accountability, which led to a banking culture in which ‘unethical behaviour went too far, was unchecked, proliferated and became the norm’.
He promised to tackle the ‘ethical drift’ the City of London has tolerated in its search for trading profits. As part of the crackdown on rogue traders, he noted that large fines are not the answer to a flawed city culture and recommended tougher rules and longer prison sentences for irresponsible traders who break the law.
But will this really achieve the cultural shift that is needed?
What is being done to identify and address the root causes of the ‘unethical behaviour’?
While many banks have strengthened their governing processes since the financial crisis, many still do not have systems in place to measure how people act or behave at work or that enable them to identify patterns of risky decision making.
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By GlobalDataAt this year’s Retail Banking conference we introduced the issue of ‘people risk’ – risks that stem from people’s behaviour and actions. In our experience, 30% of any company’s workforce has serious gaps in understanding or misplaced confidence which poses a consistent and significant risk to the business and companies need to find better ways to identify and address these risks. This discussion was well received and it is clear that many banks need to be looking more closely and identifying their people risks.
Carney’s new rules and tougher prison sentences and the new Banker’s Standards Review Board (BSRB) will promote an on-going review of competence, culture and behaviour in the banking sector. The introduction of the new Senior Managers Regime next year will also hold senior managers to account for their poor decisions and banks will also have to adhere to a ‘certification regime’ that will require firms to assess fitness and propriety of staff in positions where the decisions they make could pose significant harm to the bank or any of its customers.
But are these measures enough?
The banking sector is accepting that change is required and transparency is playing a major role in the transition towards transformation. However, without the means to mitigate and manage People Risk, evidencing sustainable transformation will be hard to achieve.
To drive cultural change, banks need to find new ways to identify measure and evidence unethical behaviour. They need to uncover what people really know and understand about their roles as well as how they are likely to act, work or behave in any given circumstance.
Mitigating risk is not just about processes, it is about understanding how people behave in different aspects of their roles in a day to day basis. It is about drilling down to the root causes of behaviour and addressing any areas of concern with targeted interventions such as coaching or training.
One effective way of doing this is measuring and assessing a combination of employee competence, knowledge and confidence to reveal what people understand and how they use their knowledge and how they act in certain situations.
By assessing competency and confidence together, companies can spot ‘risky’ individuals – people with low knowledge and high confidence as well as those with high knowledge but low confidence, who might not make the right decisions under pressure.
This enables managers to gain insight into how individuals are performing, their weaknesses and knowledge gaps and the decisions they are likely to make. The results help identify star performers as well as weak links – individuals who might need more training or who are actually not fit to practice.
Organisational risks and culture do not sit in one easy to define central function. Rather they exist in a myriad of behaviours and habits of individuals spread across all levels of the operation. Ensuring that the drivers of employee behaviour in relation to risk management are effectively embedded into the operations of the business will help to shape banking culture for the better.
Cultural change across the banking sector can only happen if banks invest greater resources in ensuring that the people they employ are not only competent but demonstrate the right behaviours at work all of the time. They need to be able to weed out risky individuals and clamp down on risky behaviour and decision making and change the culture within. Introducing intelligent employee assessments is one way they can do this.
Assessments that examine employees’ behaviour and likely decision making should be part and parcel of working life – allowing managers to spot and address risky behaviour and deal with it, before serious problems arise. Only then will managers have an accurate picture of how competent their employees are together with an indication of their likely behaviour in any given situation.
If banks can improve the competence of their workforce, they will not only get the best out of them and help them fulfil their potential, they will start to see a change in their behaviour, confidence and attitude. By understanding and addressing their people risk banks should be able to drive a positive culture change which will help them regain public trust and restore their damaged reputations.
We are currently working with a number of firms to help them mitigate risk, not just process but people related where the continuous improvement of staff capability and confidence drives a change in behaviour, towards building customer centricity.
Our People Risk and competency management system my*KNOW provides the data, analytics and evidence needed to make strategic people based decisions and deployments to evidence regulatory compliance, to reduce the cost of audit and mitigation and to more accurately target training investment and interventions.
Mary Clarke is CEO of Cognisco www.cognisco.com
