Banks have been under intense scrutiny for business ethics-related controversies since the 2008 financial crisis and have poured resources into strengthening relevant policies and programs. Despite this, controversies continue in the sector. Both companies and investors have experienced negative impacts as a result.
If a bank’s corporate culture doesn’t prioritise business ethics, it can undermine the policies and programs it has in place to enforce good conduct. An unhealthy culture can circumvent otherwise well-designed compliance controls and risk management processes, resulting in inappropriate risk-taking and potentially significant losses for a bank and its clients. To protect a company’s reputation and economic position, its employees play an essential part in organisational risk mitigation strategy by demonstrating consideration for systemic business risk, taking accountability, and being willing to escalate concerns.
Companies with a strong, ethical corporate culture have much to gain—improved employee performance, morale, and retention, and in the long run, bolstering the bottom line.
How do you measure corporate culture?
Investors with a stake in the financial industry have a vested interest in ensuring banks maintain a strong corporate culture founded on effective risk mitigation and good behaviour. However, corporate culture is challenging to measure. A widely accepted standard or taxonomy for banks to address corporate culture doesn’t exist (but the industry is eager for one to be established). How can companies quantify ethical behaviour or identify its unwritten norms?
While industry leaders understand that culture-related data is a valuable tool for improving accountability and decreasing regulatory risk, this data is arguably challenging to obtain. Some banks are exploring options, while others have been less proactive in measuring this risk. One bank is already collecting quantifiable, good-quality data.
Organisations learn better together
As banks grapple with defining and prioritizing corporate culture, the industry stands to benefit from collaborating with other companies across the sector to create benchmarks for performance on advancing an ethical corporate culture.
To foster the conversation, Sustainalytics’ Global Standards Engagement team held its first Corporate Culture Roundtable last year, bringing together several global banks to compare notes, learn from each other’s challenges and share best practices.
These insights offer an interesting look into where global banks currently stand in their corporate culture evolution and where they are headed. Other industries and companies can also apply the lessons to assess cultural equity.
5 Lessons from Sustainalytics’ Corporate Culture Roundtable
Lesson 1: Identifying culture gaps is the first step towards improvement
Banks commonly use employee surveys to gauge their organisation’s corporate culture. They can also determine gaps between the actual culture and what management thinks the culture is (“tone from the top”). But surveys have limitations—data can be unreliable and represent a static snapshot of a moment in time. It might be time for banks to consider alternative tools, such as interviews, focus groups, case studies, self-assessments, and even big-data processing in electronic communications.
Lesson 2: Albeit challenging, banks want their culture to inspire good ethics and integrity
Silos across divisions and teams can prevent an organisation from fostering the culture and ethical performance it desires. Further, banks must balance short-term financial priorities with long-term cultural priorities and defining what constitutes the desired culture is constantly evolving.
Lesson 3: Global banks are at different stages of addressing corporate culture
They are also taking varied approaches. Some are beginning to create formal frameworks for culture (e.g., defining corporate purpose and values as well as forming policies). Others reinforce those frameworks with programs, initiatives, compensation, and incentives. Industry leaders (such as ING Group) have set up a behavioural risk management team to assess and measure progress and address the informal drivers of culture.
Lesson 4: Addressing informal drivers of culture is vital
When a company encounters an issue, the initial response is often to change the corporate structure (e.g., create a new committee, write a new policy, or hire a dedicated resource). While these processes are important, efforts also need to address the informal drivers of an organisation’s culture, e.g., the ‘way of being’ of individuals, teams, and the organisation, which significantly contribute to widely accepted norms. It could be beneficial to study the habits and patterns of people by team and location, understand group behavioural drivers, and eventually take a position on whether the behaviours create organisational risk.
Lesson 5: Companies only stand to benefit from diversity, equity, and inclusion (DEI) efforts
Measures can include creating DEI board committees or executive sponsors and establishing DEI employee resource groups. Challenges include how to navigate in countries with regulations that conflict with the company’s DEI objectives.
How to Get Involved
The next Corporate Culture Roundtable will be held in the fall of 2022. It will be an exciting opportunity for investors to engage directly with key players within financial services.
Please reach out to [email protected] for more information.
Learn how Sustainalytics' Global Standards Engagement can help companies in your portfolio address incident-driven ESG risk to potentially enhance future ESG performance. Our norms-based company engagements are designed to evaluate companies’ compliance against internationally recognized norms and standards, such as the United Nations’ Global Compact Principles, International Labour Organisation Conventions and the Organisation for Economic Co-operation and Development Guidelines for Multinationals.
Sustainalytics facilitates various stewardship services for investors to help promote and protect long-term shareholder value. We work with the world’s leading asset owners and managers to engage with issuers who face high ESG-related risks by fostering constructive, long-term dialogue and corporate action planning.
Why ESG Investors Follow the Elon Musk Twitter Takeover
A self-proclaimed “free speech absolutist”, Musk has criticized what he views as excessive moderation on online platforms, indicating his desire to ease Twitter’s content moderation policies and only remove content deemed illegal by governments.
How Blockchain Technology can Unlock Climate Solutions
In this year’s recent thematic research report by Sustainalytics, An ESG Lens on Blockchain and Public Equities, we assessed how a small but growing number of companies in resource-intensive industries, such as utilities, mining and semiconductor manufacturing, are developing blockchain solutions as part of their strategy to address environmental risks related to carbon emissions, water withdrawal, and responsible sourcing.
Ocean Carriers Facing Increased ESG Risk Amidst Supply Chain Crisis
Maritime shipping is the most common mode of transport for global trade, with around 80-90% of the volume of international trade in goods carried by sea. Complex supply chain challenges around the world made 2021 an exceptionally challenging year for retailers, exacerbating global inflation. Still, it was also very profitable for ocean carriers and containership owners.
Cobalt ESG Risks Threaten Electric Vehicle Supply Chain
Transport electrification is at the forefront of the international climate transition agenda. Because of this, global demand for cobalt is projected to grow fourfold by 2030, which raises the question, are mineral supply chains robust enough to fuel a sustainable EV revolution?