Its the best and the worst of times for corporate culture in Australia
As a species, we’re still using the same technology to successfully navigate being a member of a group. The amygdala of our brain. Developed long before we used language to communicate, it’s designed to ensure our ancestors’ survival, through being an accepted and protected member of an African tribe.
Today it continues to relentlessly guide our emotions and social behaviour, also motivating our decision making as a member of any team and group, including those in our working lives.
On the whole when people commit, and bystanders fail to report, misconduct, unconscionable or criminal behaviour in their workplace, it’s not through ignorance of obligations and what is right, or because they’re a bad apple.
It’s because their workplace repeatedly sent signals our ancient navigation system recognised as reinforcing behaviours that contradicted the organisation’s espoused culture, purpose, values, obligations and rules of conduct.
Daniel Coyle, author of the bestseller The Culture Code, says culture in organisations is not about, “values and mission and accountability. Culture is not about soft stuff — it’s about signalling. Because human brains are incredibly good at perceiving signals that we are safe (or not); whether we are being vulnerable by sharing accurate information (or not), and whether we are moving in the same direction (or not).”
Coyle explains how once we perceive we’re a member of a group or team the amygdala “starts to use its immense unconscious neural horsepower to build and sustain your social bonds.” Quoting Jay Van Bavel, social neuroscientist at New York University,
“The amygdala tunes in to who’s in that group and starts intensely tracking them. Because these people are valuable to you. They were strangers before, but they’re on your team now, and that changes the whole dynamic. It’s such a powerful switch — it’s a big top-down change, a total reconfiguration of the entire motivational and decision-making system.”
This correlates with the findings of Amy Edmondson’s Harvard study on psychological safety, and Google’s five year Project Aristotle research that found psychological safety as the most important characteristic of effective teams.
As Edmondson says,
“We have a place in our brain that’s always worried about what people think of us, especially higher-ups. As far as our brain is concerned, if our social system rejects us, we could die.”
Coyle’s research also affirms that of Jeff Polzer, professor of organizational behavior at Harvard, that showing vulnerability is key to creating cooperation and trust in groups.
“It’s about sending a really clear signal that you have weaknesses, that you could use help. And if that behaviour becomes a model for others, then you can set the insecurities aside and get to work, start to trust each other and help each other.
If you never have that vulnerable moment, on the other hand, then people will try to cover up their weaknesses, and every little microtask becomes a place where insecurities manifest themselves.”
Coyle’s case studies also challenge thinking that motivation is intrinsic to individuals, we’re either motivated to meet a specific goal, or we’re not.
Highlighting what professor of psychology Gabriele Oettingen long ago demonstrated, motivation involves comparing information on “Here’s where you’re at” and “Here’s where you want to go.” As Harvard professor Robert Rosenthal also discovered, the narratives and actions that repeatedly reinforce goals, create numerous behaviours propelling group members towards what they perceive are shared goals.
Here’s a few high profile examples explaining what occurred in recent cases of misconduct and unethical behaviour.
Signals about direction and what matters, about purpose, goals and priorities.
Whilst the Commonwealth Bank of Australia (CBA) led the banking industry with the technological sophistication of their Intelligence Deposit Machines (IDM), recently CBA agreed to pay $700 million plus legal costs, the biggest fine in Australian corporate history, for associated breaches of anti-money laundering and counter-terrorism financing laws. APRA reported that CBA’s anti-money laundering procedures did trigger alerts, these were reviewed by the bank’s Anti-Money Laundering Team and matters relating to other red flags on accounts were referred to their Intelligence Team.
Accounts refer to a culture within CBA where speed to market of customer friendly technological innovations in a highly competitive industry, mattered more than managing compliance and legal risks associated with their IDMs.
The pressure within the Australian Cricket team to turn around a losing streak after years of dominance, reportedly sent similar ‘winning at all costs’ signals that resulted in numerous on-field confrontations with opposition teams, before culminating in the recent ball tampering and cheating scandal.
Signals that it’s safe to raise problems, risks and tough issues, to ask for help.
The Report of Abuse in Defence published in 2014 as a result of the Australian Defence Force Taskforce assessment and response to historic individual cases of workplace abuse and harassment over a period of many decades, highlighted the central role of silence. “In many cases, complainants reported that this pervasive ‘culture of silence’ was reinforced by the fact that staff or other superiors were aware of some or all of the abuse, and either did nothing to prevent it, and in some instances actively encouraged it. Reinforcing an accepted code of silence … implicitly approved by the hierarchy.”
Signals that value the sharing of accurate information and the truth including admitting failure, promoting openness and transparency.
When Volkswagen realised its’ diesel engine failed to meet required emission standards, instead of fixing the problem it was hidden from customers and regulators by VW’s engine development department installing software that fudged the data. Recently fined 1 billion euros by German prosecutors, in addition to the $4.3 billion draft settlement with U.S. regulators, when the scandal broke in 2015 Matthias Müller, then VW chief executive, pledged “greater humility” and no “yes-men”, as part of a more open culture. Current chief executive Herbert Diess recently announced moving to a more open corporate culture remains the organisation’s highest priority, “such openness is important in enabling us to deal consistently with problems within our organisation.”
Why it’s the best of times for corporate culture in Australia
Research and science, namely social neuroscience, psychology, anthropology and behavioural science, defines organisational culture in ways that inform what to effectively manage and measure.Hence, it’s the best of times for Australian organisations to proactively nurture positive cultures.
This body of knowledge also explains the principal role culture plays in misconduct and unethical behaviour in Australian workplaces, providing the answers to both reforms and prevention. Why it’s important to move our current discourse in Australia on culture towards accepting a scientific based definition, away from decades of business models and management jargon that have distorted its’ meaning beyond recognition.
‘Culture’ comes from the Latin cultus, which means ‘care’.
History and current news stories tell us that poor cultures signal that’s it’s okay to be careless with customers, with employees and with espoused rules and obligations. Just as there’s substantial evidence that current approaches to ethics and conduct focussing on policies, processes, rules and compliance are missing that point.
The Financial Stability Board (FSB), which monitors and assesses vulnerabilities affecting the global financial system, recently conducted a review of misconduct in the financial services industry. Assessing the three main approaches to prevention of misconduct, they concluded that mere rules-based approaches, even accompanied by deterrence, have limited effectiveness if applied in isolation of behavioural and cultural approaches that address root causes.
Noting the often counterproductive effects of implementing stringent systems of oversight, control, accountability and discipline can cause. Triggering atmospheres of distrust within organisations that erode cooperation. Significant penalties often promoting behaviours of concealment and defiance.
The report published in May by the Ethics and Compliance Initiative (ECI) as part of their longitudinal study of ethics in US workplaces, identifies pressure to compromise ethical standards and retaliation for reporting wrongdoing — signals within organisations that ethical conduct isn’t a priority and it’s not safe to talk about misconduct — as key indicators of future unethical behaviour.
The ECI says,
“Managers challenged with higher quotas or growth requirements during economic upcycles may show a willingness to compromise ethical standards, therefore exemplifying the wrongdoing and influencing their subordinates.”
But of greatest concern to the ECI was a lack of cultural reform to address causes of misconduct.
The major finding of the Thomson Reuters forum on culture and behavioural science in the banking industry held in April, was more progress is needed in banks applying behavioural science to better understand the internal workings of their cultures.
Why it’s the worst of times for corporate culture in Australia
We shouldn’t be surprised that media coverage in Australia continues to highlight cases of how some workplace cultures have led to large scale misconduct and unethical behaviour, as research shows we’re lagging behind the rest of the world in taking meaningful action on high levels of known misconduct.
CEB Gartner’s 2016–17 Global Trends in Misconduct research suggests nearly 1 in 5 (19.3%) of employees in Australia have observed misconduct, only lower than misconduct observation rates in Pakistan (25.6%) and Costa Rica (21.9%).
At the same time the latest Thomson Reuters report on Culture and Conduct Risk 2018: Benchmarking 5 years of Implementation, indicates only half of companies in Australasia have approaches linking culture with conduct risk. Whilst the majority of Australian companies believe personal liability of managers for culture and conduct risk will increase, very few discard business opportunities due to these risks.
Are Australian regulators and professional associations steering organisations in the right direction to manage corporate culture?
The Australian Securities Exchange (ASX) Corporate Governance Council is currently seeking submissions on proposals to update and issue a fourth edition of its Corporate Governance Principles and Recommendations, including recommendations in how entities should “instil the desired culture” and “[a] listed entity should instil and continually reinforce a culture across the organisation of acting lawfully, ethically and in a socially responsible manner.”
Managing Culture: A good practice guide was published last December by the Institute of Internal Auditors — Australia (IIA-Australia). Created in collaboration with The Ethics Centre, Chartered Accountants ANZ and the Governance Institute of Australia, it was launched by John Price, Commissioner of Australian Securities and Investments Commission (ASIC). Price outlined ASIC’s approach to corporate culture in a speech 19 July 2017, and ASIC has recently proposed monitoring the culture and compliance of the major banks by embedding agents within these organisations.
The Australian Prudential Regulation Authority (APRA) published an Information Paper on Culture Risk in late 2016 and are currently piloting APRA teams conducting onsite culture risk assessments at five unnamed financial services companies.
Let’s step through some of the main statements underpinning their approaches and proposals.
Science and research supports a different definition from that of most Australian regulators and professional associations, that “the way we do things around here” and “norms of behaviour” are the outcomes and symptoms of the culture, not the root cause — the culture itself.
Culture being those repeated signals people in groups process that influence their emotions and motivate their behaviour and decisions. Which APRA does acknowledge through references to the De Nederlandsche Bank (DNB) approaches.
“Behaviour and culture are more difficult to observe and less tangible than the financial or organisational aspects of an institution. One could liken the behaviour and culture of an organisation to an iceberg, of which only the tip is visible. The rest is submerged. Behaviour is the visible portion of the iceberg, given that it can be directly observed. But the tip of iceberg doesn’t tell you what is concealed underneath. What is not visible to the eye are the motives underlying certain forms of behaviour.”
These approaches in the main also fail to acknowledge the overwhelming evidence that culture trumps compliance and ethical frameworks and policies, including espoused principles, values, codes of conduct and purpose.
Sound “risk” and “ethical” cultures adds to the already confusing language for boards, executives and managers to navigate. One already littered with ‘innovation cultures’, ‘digital cultures’, ‘safety cultures’, ‘customer-centric cultures’ and ‘learning cultures’, ignoring that a desirable culture where teams have trust based, open, supportive and cooperative relationships, achieves numerous positive outcomes.
As human beings the factors that influence our decisions and behaviour are the same, no matter what industry or organisation we’re working in, no matter what strategies we’re implementing, no matter what the nature of the tasks we undertake and the decisions we make — about customers, risk or anything else.
As someone who has worked as an authorised officer for a government regulator, and consulted on compliance, ethics and problem gambling in the casino and gaming industry, I worry there isn’t an accepted definition of a desirable core culture that is applicable, measurable and valuable for any organisation in any industry. Given scientific based definitions of culture not only aligns with global research on conditions that promote legal and ethical conduct. It correlates with known human needs and factors that also foster well-being, innovation, diversity, inclusion and productivity.
This lack of an accepted definition of a desirable core culture decreases the likelihood of organisations taking meaningful action. Whilst making it challenging for boards, shareholders and regulators to hold them to account if they haven’t.
As many high profile cases have demonstrated, ‘win at all costs’ strategies have historically contributed to wide scale misconduct. Another reason why strategies should align to the aspired culture, not the other way around.
There’s a powerful paradox for organisations where people don’t feel safe to raise risks and issues, have low trust in speaking the truth to management and others, or have been party to putting the organisation’s interests ahead of its’ obligations, customers and shareholders.
And it’s that traditional audit and risk approaches to gathering real insights about its’ culture will likely be defeated by that culture.
APRA is leading the conversations and the way in the application of a scientific based understanding of culture, with experts in organisational psychology already working onsite to assess culture, “drawing on a wide range of sources, from the opinions of junior staff to first-hand observations of board meetings.” What remains to be seen in the second half of this year when their pilots are completed, is how the narrow scope of reviewing “risk culture” impacted obtaining insights into root causes of poor decisions and behaviour.
Also proposing to embed agents within banks, ASIC hasn’t indicated if these staff will be experts in psychology and human behaviour, or traditional risk auditors.
In conclusion, Australian organisations cannot know if they need stronger corporate governance, compliance and ethical frameworks and what adjustments to make, without first using behavioural science to gain an understanding of which elements of their culture render these ineffective or may do so in the future.
And that’s where organisational psychology and behavioural science professionals, internally and externally, must lead the design and implementation of approaches to analysing and improving workplace culture. Board membership also requires psychology and behavioural science expertise, to guide how to correctly interpret and act upon, cultural risks and issues, with regulators intending to hold them more accountable.
The rise of professional services workers and outsourcing, the gig economy, operating models based on ecosystems and platforms, collaborations and business partnerships, all bring inherent cultural complexities and potential conflicts of interest (think Arthur Anderson and the Enron scandal).
Meaning just as culture crosses organisational boundaries, so too must the accountability of boards and leadership teams, and any team assessing culture.
But none of the above will make a real difference, if we fail to collectively agree on a science based definition of organisational culture that informs what to effectively manage and measure.
Originally published on LinkedIn on June 29, 2018