Fixing Bank Culture Must Be Industrywide Effort

WASHINGTON — Since the financial crisis, there has been a consensus that bankers need to repair their corporate cultures in order to fix the reputation damage during the housing collapse.

But some bankers are saying the effort needs to be more coordinated, or it runs the risk of not taking hold as employees move from institution to institution.

"The reason why [culture] is so important is that we are dealing with these issues collectively as an industry," Thierry Roland, chief executive in charge of global banking and markets for the Americas at HSBC Bank USA, said during a conference here last week. "We are all hiring staff from each other and ... that is what is to be expected of our industry. You don't develop good behaviors overnight, because you have moved from one shop to another."

Bankers speaking at the Institute for International Bankers conference last week agreed reputational damage done by the financial crisis remains a problem.

"Once you lose your reputation it is hard to regain and you can go out of business," said William Rhodes, who had a 50-year career at Citi before retiring as senior vice chairman. "Coming out of the great recession, the public lost trust in many of the banks and that is not just in the United States. You see that in Europe and in other parts of the world, and in fact we are seeing it in the political scene here."

The challenge for banks, however, is finding ways to curb bad behavior and encourage compliance across large organizations that often employ thousands of people in different countries and continents.

The United Kingdom Financial Conduct Authority made changing bank culture one of its priorities in its 2015-16 business plan and planned to issue a thematic review after investigating the issue. Ultimately, however, it decided banks needed to have their own individual cultures and that issuing generalized guidance would fall short of improving bank culture industrywide.

However, banks are still taking steps on their own. One approach has been to tie compensation to metrics associated with culture such as adhering to compliance requirements, drawing clear lines of accountability and realigning compensation schemes that focus on more than just short-term profits.

"We think it is very important that culture play a very important role in performance ratings and that is why score-carding on this is also very important," Roland said. "Staff must understand the implications of failing on behaviors values and metrics. They must understand this is part of the game and how they are being rated."

Rhodes agreed, with Roland adding that there must be some "tie-in with compensation for those who do right." For employees who have a poor track record, Rhodes said there should be some kind of punishment.

"Those who do not" abide by a culture of compliance "ought not to be rewarded in a positive way, and frankly they need to bear the results of that, whether it be a hit in compensation or at worst to be let go. I think it is very important that you have the enforcement side in this. I don't think we should be waiting for the regulators to tell us what to do, much less the politicians."

Rhodes also said changing corporate culture has to start at the highest level of the bank. "The tone at the top must be echoed … all the way down."

However, with extremely large organizations that operate around the globe, it is up to the local managers to instill the corporate culture at the ground level, they said.

"The way to actually implement it puts an enormous responsibility on those managers and those managers are local, so I think that is where you break the gap. This is the local execution of a global framework," Roland said.

Roland also said HSBC requires staff to do "a lot of training" so they know what is expected of them. Some of that is done through "e-learning" while other training is done by going over case studies. He added that the company encourages employees to say something to managers when they stumble on a vague area, but he said listening to employees can be invaluable.

"One thing a lot of organizations are doing that we are doing [is] called exchange sessions, which is probably my favorite meeting at HSBC, which is a session where I am attending with a lot of staff … and my task is to say nothing. My task is to listen."

Naturally, employees sometimes vent frustrations, but the exchange sessions can be good for that as well, Roland added.

"You open the dialogue and conversation with the staff, and we find that quite useful. And very often what the staff then realizes is that you don't need to have the answers to all the questions," he said.

Often there are hard-to-navigate gray areas as opposed to the bad behavior that is easier to isolate. But Roland said that when employees encounter those situations, HSBC wants them to speak up to focus more attention on the issue.

Patrick Connell, head of corporate and consumer banking at McLagan, a performance and reward consulting and benchmarking firm for the financial services industry, also spoke on the panel with Rhodes and Roland.

"Banks have done actually a very good job, particularly the European banks and the large, $50 billion-plus banks in the U.S., complying with the regulatory guidance and without a lot of clear rules," Connell said.

But Roland reiterated that "we have to be careful in presenting the achievements that we are making more broadly on the aspect of culture" and "to acknowledge that is far from the end and that it is a journey that clearly will never end. And we, the regulators, the society keep raising the bar. And that is to be expected and there is still a lot to be done."