Let's assume that a healthy corporate culture manifests itself in all staff being highly motivated in working towards a common, clearly stated purpose. Daniel Pink describes the true Motivation (3.0) of any creative economy as having three pillars: purpose, autonomy and mastery[1]. This compares against Motivation 2.0 that is the stick and carrot approach of the industrial revolution.

The corresponding focus on purpose by financial regulators is not by chance. In good strategy practice it should set the guiding principles of strategy that influence behaviours when under stress or in times of uncertainty. These principles define a culture, while the aggregate of behaviours reflects the culture.

Fehr, Cohen and Marechal[2] demonstrated how bank employees who are honest at home and in society can become dishonest as they walk in the door, due to the unwritten rules of the prevailing culture. This is based on our rapid short-term fast thinking[3] - we evolved to make decisions for survival and the UK FCA refers to this flexible cognitive psychology[4] as behaviour at risk (BaR). Behaviour changes in fractions of time, seconds, minutes and hours depending on the immediate environment. This cannot be driven by financial compensation alone but can be derailed by it when people believe that they are paid to deliver something other than a pro-social purpose.

Regulators recognise that fear disempowers critical thought and leads to motivated errors - these often underly regulatory breaches - both large (financial crisis) and small, if large in aggregate (mis-selling PPI to an individual). Senior leaders who do not spend time with and communicate at a human level with their staff run the risk that what they 'say? will not be what is actually ?heard?, or rather that they communicate a purpose which is at odds with the publicly stated one: i.e. ?make profits now?, rather than 'support the needs of our clients and facilitate economic growth?. Management by Walking About (MBWA) is a great way to break down barriers. It can be difficult in the isolationist environment of Covid-19, but it is still possible using group chat technology. Simply talking to staff and answering questions authentically is a great start.

A healthy culture therefore starts with a clear purpose that everyone can understand and with which they can relate. It continues with business and reward frameworks that have ?exemplary behaviour? embedded at their heart and are clearly aligned with that purpose. They are underpinned by a safe environment ? to raise concerns, challenge the status quo and thus innovate. This does not mean an absence of sanction, but a culture that supports and rewards the right behaviour and treats genuine mistakes fairly.

This leaves individuals free to be whole and honest - the true definition of integrity. With such integrity, if we add diverse perspectives and an environment that enables staff to respect, challenge constructively and adapt their own behaviours to reflect such cognitive diversity, you create cognitive adaptability, which allows people to fit culture, so that culture in turn reflects authentic behaviour. Cultural fit is important, but what predicts success most is the rate at which employees adapt as organisational culture changes over time. Research based on the latest collaborative tools shows that the best cultures encourage diversity to drive innovation but are anchored by shared core beliefs (i.e. guiding principles) based on purpose[5].

There is much more that underpins these core behaviours, including how the regulator assesses these and audits culture under conduct's Senior Managers and Certification Regime (SMCR) and Firm Assessment regimes. More importantly, as we struggle with the effects and wide-ranging changes caused by Covid-19, looking at how firms can take the opportunity to work with relationships between behaviour and performance to create value is a core focus of the Conduct and Culture Academy at UK Finance.
 

Patrick will be hosting a Q&A on the learning outcomes of the Academy on 19 August - register for your free place here.

The latest cohort of our in-depth Conduct and Culture Academy? now delivered to over 100 participants - will run over the course of four virtual workshops (22 September ? 11 November) and will be supplemented by interactive webinars, podcasts, plus e-learning, reading lists and downloadable resources.