How Universities should investigate a complaint under the disciplinary procedure
Last month, the Financial Conduct Authority (FCA) published a discussion paper, the purpose of which was to collate views from industry leaders, academics and practitioners to encourage debate on how best to bring about a sustainable cultural shift in the financial services sector. The paper forms part of a wider discussion on culture in financial services, of which other key players like the Financial Reporting Council (FRC) (Report: Corporate Culture and the Role of Boards) and the Banking Standards Board (BSB) (Statement of Principles for Strengthening Professionalism; 2018 Annual Review) are a part.
Defining culture as “the habitual behaviours and mindsets that characterise an organisation”, Jonathan Davidson (Director of Supervision—Retail and Authorisations, at the FCA) noted in the foreword to the paper that “healthy” cultures have specific characteristics which reduce harm. These characteristics can be assessed by looking at four main drivers, namely an organisation’s:
Following the financial crisis of 2009, and the LIBOR rigging and PPI scandals, trust in the financial services sector is low. As Andrew Bailey, Chief Executive of the FCA, noted in his speech on this issue last month, “culture in financial services is widely accepted as a key root cause of the major conduct failings that have occurred within the industry […] causing harm to both consumers and markets”.
The regulators have shone a spotlight on culture in recent years, introducing initiatives such as the Senior Managers and Certification Regime, the regulatory references regime, new whistleblowing rules, and remuneration regulation (whereby significant portions of an individual’s variable remuneration remain at a risk of malus and clawback, giving individuals so-called “skin in the game”). These initiatives are premised upon two very simple, very direct concepts: accountability and responsibility.
Yet, another concept which is arguably as important (and which is hitting the headlines at the moment) is that of diversity. As Bailey noted last month, organisations which pursue diversity and equal opportunities are those which are likely to have a culture that is open-minded, tolerant, considerate, and aspires to improve—“when I look back at cultures that I have seen where things have gone wrong, these are not descriptive terms that I would employ”.
According to the latest gender pay gap figures, 78% of financial services firms with 250 or more employees pay men more, on average, than women, with women significantly underrepresented at senior or management level. Only around 13% of approved individuals in trading firms are currently women, with 16% in investment management and just over 18% in retail banking. Only 1 in 3 firms employ more women than men in top-earning roles.
Yet, as Megan Butler (Director of Supervision—Investment, Wholesale and Specialists, at the FCA) noted at the recent Women in Finance forum, in order to drive change in financial services, we cannot focus exclusively on arguments around social justice. It’s a “clinical point”, Butler admits, but in order to get buy-in “we need to call out the fact that diversity is fundamental to business success and to the reduction of failure”. Gender diversity “confers significant advantages on firms”.
According to Butler, firms with monocultures suffer 24% more governance-related issues than their peers. They breed an environment whereby unacceptable behaviour more readily becomes the norm—these cultures have an increased appetite for risk and lack the natural check and balance which a more diverse culture demonstrates.
Diversity guards against the risks associated with group-think and pressure to conform. It also has major economic benefits. There is evidence to suggest that teams with greater gender diversity are better at logical analysis, problem solving, and coordination. According to a report by Forbes and Bloomberg, teams that follow an inclusive process make decisions on average two times faster than those which do not, with half the meetings, and deliver 60% better results. Mixed-gender investment fund teams attract 6% more inflows than single-gender teams. Research indicates that a strong female presence at board level results in higher returns on equity of 10.1% per year, as compared with 7.4% without. Credit Suisse has found that companies with 15% female senior managers have more than 50% higher profitability than those where female representation at management level is less than 10%.
Where something as ingrained as culture is concerned, there can be no quick fix. However, it is clear that this issue remains high on the regulators’ agenda. As Mark Carney, Governor of the Bank of England has previously noted, “we need a richness of ideas and perspectives that are exchanged in the pursuit of clear goals under an overarching mission. This is the crux of inclusion”. Last month, the BSB published its Statement of Principles for Strengthening Professionalism, calling on “the leaders of banks and building societies to invest in their employees, and ensure a sustained focus on serving customers, clients and broader society”. In its 2018 Annual Review, it outlined the results of its latest assessment of culture in UK banking.
In addition, the Government has issued a consultation on revisions to the UK Corporate Governance Code, which includes an updated Principle that “Directors should embody and promote the desired culture of the company” and that the Board should “monitor and assess the culture [of the company] to satisfy itself that behaviour throughout the business is aligned with the company’s values”.
Further, on 9 April, Helen Reardon-Bond, Strategic Advisor on Diversity and Inclusion at the FRC suggested that gender pay gap reporting could be extended to all businesses with more than 150 employees in the future, in an effort to promote transparency of pay between the sexes and the progression of women in the workplace.
With the proposed extension of the Senior Managers and Certification Regime in 2019, the extension of the Conduct Rules, and the ongoing industry drive to promote accountability, responsibility and diversity, knowing what a good culture looks like, understanding how to encourage and incentivise people to achieve it, and putting in place measures to maintain it, will be critical for firms going forward.
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