Senior figures at the Financial Conduct Authority are increasingly speaking about the importance of firms having the right culture and how they believe this will lead to better customer outcomes. The FCA has now published a discussion paper on the subject, which contains a number of good practice examples. The regulator even acknowledges that, on occasions, they could be the cause of an adverse impact on a firm’s culture because the firm is worried about how the FCA will view an individual matter.
Unlike other FCA papers, the regulator is not seeking formal feedback from firms and other organisations. Instead the FCA hopes that issuing this discussion paper will start a debate on the issue of culture.
Some of the key items from the discussion paper include:
- Employees often work better when they have a sense of purpose and feel that they are making a meaningful contribution to the firm’s strategic goals. A firm’s purpose needs to be simple and understandable by all, and ideally the firm’s senior managers will have drawn up a statement of purpose for the firm. Once this statement has been finalised, the next task might be to define what ‘good outcomes’ would look like, from the perspective of both customers and employees
- A number of firms are displaying images and quotes from their customers in public spaces around their offices to emphasise why what they do matters to their customers
- All firms need to make a profit, but it can lead to unfavourable outcomes for customers and/or employees when profit moves from being merely an outcome to the primary purpose of an enterprise. Joe Garner, CEO of Nationwide Building Society, suggests firms could adopt a hierarchy of outcomes, where once they have made a decent profit, they can address higher level goals such as serving customers and benefitting wider society. Mr Garner also calls on firms to work out how large their ‘purpose gap’ is. The purpose gap is the difference between what the firm hopes to achieve, and the outcome that would be achieved via its existing business practices
- In some ways, the hierarchy of outcomes could work the other way, in that if a firm is able to serve its customers better, and manages to benefit wider society, it can use these achievements in its marketing activities and, hopefully, achieve higher profits as a result. The examples used are Zurich’s claims record of paying, on average, 99% of first party claims across the UK business; and Vitality’s insurance arrangements where premiums decrease if customers lead healthy lifestyles
- When firms have a short-term goal to generate revenue at the expense of the best interests of its customers, it often ends up benefitting no-one. Consider the scandals such as PPI and LIBOR, from which there were no winners
- The large gender pay gap that exists in many sectors within financial services could lead to prospective employees feeling the industry is out-of-date and out-of-touch, and result in the most capable people choosing alternative careers
- When firms reward their staff, the best firms don’t just increase their salary and perks, but also provide comprehensive training and education
- Effective and ethical dealings with third party service providers are also traits exhibited by the firms with positive cultures
Jonathan Davidson, FCA Executive Director of Supervision – Retail and Authorisations, said:
“The purpose of a firm sits at the heart of its business model, strategy and culture. Unhealthy cultures and purpose have been at the root cause of too many mis-selling and other conduct scandals in financial services. I want to see strong leadership creating purposeful cultures where it is safe to speak up and diversity is encouraged and listened to.
“A healthy purposeful culture should lead to better outcomes for consumers and markets, and healthy and sustainable returns for shareholders. It should also lead to a healthier and less stressful environment for employees, and a reduction in increasingly concerning mental health issues.
“However, culture transformation is difficult; even with strong leadership it takes time and consistency, but small changes can make a big difference. I hope that everyone who reads these essays will be inspired to take at least one idea back to their organisation to try for themselves and take a step towards creating more purposeful cultures in financial services.”
In his foreword to the discussion paper, Mr Davidson says:
“My purpose at the FCA is to bring about a transformation in the business models and culture of financial services.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article