Blog – Culture, Behaviour, Systems and Processes – Wherein Lies The Answer?

By Shaun McCarthy

The Hayne report is out. It’s 500 pages long and has over 70 recommendations that will apply to financial organisations, individuals in those organisations and the regulators who control these industries in an effort to improve the way financial services are provided to the people of Australia.

Many of these recommendations involve changing existing and enacting new legislation as industry oversight. But much of the material considered by the commission concerned behaviour at the individual and organisation levels and organisational culture in both the industry of the regulators.

So the obvious question to be asked is: “Can you regulate behaviour and organisational culture?”

For instance, for the regulators the report presents recommendation 6.9 suggesting that “the law should be amended to oblige APRA and ASIC to cooperate with each other…” As everybody in management knows, getting people to cooperate, especially across different functions, is never easy. Across different organisations, each with their own territory to preserve, will be a challenge indeed!

For the banks, Financial Advisors, Insurance Companies and Superannuation organisations a number of recommendations suggest changes to current legislation and codes of conduct to change behaviour at both the individual and organisational levels.

If legislation drove behaviour, no-one would exceed the speed limit, everyone would wear their seatbelts, no-one would take drugs, no-one would drink drive, there would be no crime, and no-one would cheat on their tax returns.

What behaviour legislation does drive is compliance. The need to ‘stay out of trouble’.  In this way, it’s not principled behaviour – its’ defensive behaviour that is the avoidance of a negative rather than achievement of a positive.

What does drive behaviour are values and beliefs at the individual and collective levels. If we believe that safety for our family is paramount, we will want to wear our seatbelts, not exceed the speed limit (at least by not too much) and not risk driving after a few drinks.

Such beliefs are based in our core value system and cause us to behave or not behave in certain ways according to these beliefs and values. When these beliefs and values are common amongst most people, at the collective level these are considered to be cultural beliefs and norms, or simply culture at the societal level.

So too at the organisational level – which after all is a micro society. Certain values and beliefs (culture) causes people to behave in certain ways. The key question to ask here is “to whose benefit is such behaviour oriented – the individual, the organisation, the customer, the wider society, etc?’

The report quite correctly defines culture as “the shared values and norms that shape behaviours..”

The question that does not seem to be considered by the Royal Commission is: “What were the underlying values and beliefs that drove the cultures and led to the behaviours outlined in the review?”

These values and beliefs are observable through the artefacts that represent the beliefs. Commissions, pay incentives, financial goals and such like are the observable artefacts of the underlying beliefs.

Interestingly the report states that “there is no single best practice for creating and maintaining a desirable culture”, but there is a substantial body of research that points to good and not so good practice. And a lot of this has been around for years.

In 1975 for instance (Academy of management Journal December 1975) Stephen Kerr wrote a seminal paper titled “On the folly of rewarding A, while hoping for B”.

In this paper he presents research and examples of organisations attempting to use bonuses and other incentives to drive behaviour. As the title suggests, they got other behaviours that were unexpected. So, for 43 years, we’ve knows that such incentives often create behaviours other than those desired but here are in 2019 and still learning this the hard way!

There is considerable research into the causes of and effects of organisational culture both overseas an in Australia that it does not need to be treated as some airy fairy concept that cannot be measured, managed and changed.

Want to learn more?
Banking Royal Commission – Action Plan
How to change Culture in 4 phases


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