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Resetting values In the aftermath of the banking crisis BOXWOOD PERFORMANCE SERIES

Resetting Values in the aftermath of the banking crisis

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In the aftermath of successive banking scandals, investigations have rightly identified a failure to “walk the talk” - actions have not been aligned with values. It may be tempting to believe that a renewed push on resetting and embedding values will change behaviours. And indeed it is a good start, but all our experience tells us that other factors are at play.

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Page 1: Resetting Values in the aftermath of the banking crisis

Resetting valuesIn the aftermath of the banking crisis

BOXWOOD PERFORMANCE SERIES

Page 2: Resetting Values in the aftermath of the banking crisis

In the aftermath of successive banking scandals, investigations have rightly identified a failure to “walk the talk” - actions have not been aligned with values.It may be tempting to believe that a renewed push on resetting and embedding values will change behaviours. And indeed it is a good start, but all our experience tells us that other factors are at play.

Paul Sweeney © Boxwood Ltd. 2013. All rights reserved

SECTION 1

Page 3: Resetting Values in the aftermath of the banking crisis

Through our work advising financial institutions we are in the privileged and fascinating position of objective observers. Of late, a consistent pattern is emerging in UK banks. It looks like this:

Leaders are burdened by the enormous complexity of the issues they are facing. Having achieved a level of financial stability, they are grappling with the challenge of rebuilding trust and shifting culture, leadership and behaviours towards a more sustainable future. They know they should be dealing with the important stuff - purpose, mission, engagement – but with all the fire fighting, there just never seems to be the time.

Middle management feel torn between the conflicting demands of those above and those below. They act more as individuals than as a cohesive group. They rely heavily on “carrot & stick” to maintain performance. Faced with huge uncertainty, many hesitate to take real responsibility for change and instead focus on survival. Fear and anxiety abound.

Many at the bottom of the hierarchy feel unloved, disempowered, fearful. There’s a huge gap between the rhetoric of customer centricity and the reality of life in the “system”. Change is “done

to” them. Initiatives come and go, many more are started than are finished. Restructures happen to them. They blame the remote senior leadership for their situation, not seeing the part they could play in changing it themselves. “Gaming” the system to survive consumes energy and focus. Despite the challenges, loyalty is still in evidence and there’s a sense of unity driven by shared vulnerability.

Customers are stunned to find that the system treats them more as problems than as opportunities. Promises are made, then broken: explanations, delays, excuses - everything except the service they feel they deserve.

Despite huge levels of investment, poor customer and employee engagement move painfully slowly, if at all. Nobody is quite sure why it is so difficult to land change effectively – after all, we all agree it’s the right thing to do, don’t we?

We’ve noticed that a number of banks are focusing efforts on resetting and enforcing values, in the hope that that this will provide the “moral guidance” for change. This can be a useful starting point, but it is only part of the answer.

1.1

Introduction

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Page 4: Resetting Values in the aftermath of the banking crisis

As with other disasters, the aftermaths of banking scandals bring a search for causes and a desire to protect against future breakdowns in trust and ethics.

Inevitably, the findings lead to a discussion of values, and the misalignment between an organisation’s stated values and its actions. Integrity was a core value for Enron. Safety was a core value for BP, but a lack of safe practice was evident in the Deepwater Horizon disaster. Lloyds Banking Group has a core value of “putting the customer first” but faces over £5bn in compensation payments for mis-selling Payment Protection Insurance (PPI) to those very customers.

In the face of complexity our natural tendency is to seek constructs that provide less complex answers. One such construct assumes that a focus on values - through education, communication and enforcement - will address the behavioural issues at the heart of the scandals.

While it is true that actions which caused corporate disasters did not align with stated values, this does not prove a cause and effect relationship. In our experience a focus on values helps in that it reminds people of the purpose and intent of the organisation. But we believe it should be part of an integrated approach to unlocking performance that seeks to understand the interplay of the different drivers of behaviour unique to the business. The following pages explain the foundations of Boxwood’s approach to unlocking that performance.

1.2

IN BRIEF

1. We are driven to seek answers on what caused corporate scandals

2. Inevitably, postmortems find actions were not aligned with corporate values

3. This does not prove a cause and effect relationship - a focus on values will not necessarily address issues that are behavioural in nature

4. A focus on values should be part of an integrated approach to unlocking performance

Values in crisis?

3

Page 5: Resetting Values in the aftermath of the banking crisis

Behaviour is a key determinant of organisational performance. For shareholders, performance includes sustainable return on equity. For employees, performance can mean engagement, development and return on their investment of time and energy.

So what drives behaviour? In our work we have developed a Boxwood behavioural model that incorporates leading-edge systems thinking, behavioural psychology, cultural research and

insights from our own extensive practice of working with clients to unlock the performance potential of their organisations.

You can’t really manage behaviour. But you can focus on the key drivers that influence behavioural outcomes. These are the individual, systemic, cultural and structural drivers at play - some visible, some invisible.

1.3

Behaviour

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Systemic Patterns

Reliably predictable patterns of behaviour that organisations fall

into over time

Cultural Assumptions

Shared views within the organisation that unconsciously influence perception, thinking,

frames of reference & decisions

Structural Drivers

Organisational structures, rewards & incentives, physical environment,

policies & processes, systems, training, etc.

BEHAVIOUR

PERFORMANCE

Individual Values

Page 6: Resetting Values in the aftermath of the banking crisis

IN BRIEF

1. Individual values have an important effect on behaviours and attitudes

2. Other behavioural drivers can cause people to act in a way contrary to their values

3. The primary challenges are:

• Helping people to understand their own values and motivators and work out whether they align sufficiently with the new organisational values

• Encouraging people to take responsibility for making changes to the way they work so they are more fulfilled

• Building belief that the leaders really mean to behave according to the new values this time

Research has identified a number of consistently occurring human values*. Each of us is motivated by all of these values, but to differing degrees.

The psychological relationships between these different values we hold have an important effect on our behaviours and attitudes. However, our behaviour can be significantly affected by other drivers - even to the extent that our actions can directly conflict with our personal values.

Given the current levels of trust and engagement in banks, employees may well ask: why should I care? Is this just more propaganda from internal communications? Will leaders really be held accountable? Our advice is to:

1. Make it relevant. Help employees to explore their own values; “unpack” the corporate values; understand how to align them with their own values

2. With a better understanding of what they value, encourage people to take more control and responsibility to change the way the work so that they are more fulfilled (this helps to address some of the systemic behaviour patterns discussed in the next section p.6)

3. Consider what early actions can reinforce the new values and demonstrate leadership commitment and accountability

1.4

Individual Values

5

*Research involving over 60,000 people identified 10 common value groupings (universalism, benevolence, tradition, conformity, security, power, achievement, hedonism, stimulation, self-direction). From Universals in the content and structure of values: theoretical advances and empirical tests in 20 countries - S.H. Schwartz (1992)

Page 7: Resetting Values in the aftermath of the banking crisis

A wealth of systems thinking and research by Barry Oshry* and others has demonstrated that organisations fall into predictable patterns of behaviour.

The patterns occur at three levels - tops, middles and bottoms. Though it feels simplified, the patterns are reliably predictable across geographies and industries. These levels are not static, for example a senior manager could be “top” in business unit interactions, but “bottom” in interactions with the executive board.

Tops feel burdened by overwhelming complexity. Top “teams” are caught up in destructive turf warfare, failing to understand or support each other. They are frustrated by a failure to drive change, for which they blame the middles.

Middles feel torn by the system, confused and powerless. They are pulled between conflicting demands, and priorities from above and below. Middle peers are alienated from one another. They fail to act with collective voice or purpose.

Bottoms feel oppressed. Restructures are “done to” them. Initiatives come and go, most fail. They feel unseen and uncared for. They don’t have the big picture, there is no vision they can commit to, they don’t have a sense of purpose. Bottom group members are united by shared vulnerability, for which they blame the tops.

Customers feel outraged by the unresponsive delivery systems they encounter, and amazed by the internal focus of the system.

1.5

IN BRIEF

1. Organisations fall into reliably predictable patterns of behaviour

2. The behaviours occur at three levels - tops, middles and bottoms

3. These behaviours are likely to run counter to key organisational values, and can severely limit the capacity of the system to respond to values-driven initiatives

Systemic Patterns

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*Seeing Systems - Unlocking the Mysteries of Organisational Life - B. Oshry, (2007)

Page 8: Resetting Values in the aftermath of the banking crisis

Culture is a somewhat abstract idea. You can’t really touch it or see it. But the assumptions that underpin culture exert a powerful force on behaviour. The leading culture expert Edgar Schein* describes culture as:

“...shared basic assumptions learned by a group as it solved its problems...which worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel...”

In organisations we have worked with, we have uncovered cultural assumptions that run counter to the stated values. One organisation had stated core values of teamwork and collaboration. However, an assumption operating in the culture was that individual performance was valued above all else. Another had values of honesty and courage, but an assumption that it was not safe to speak out or “rock the boat”. Efforts to enforce these values had repeatedly failed.

Assumptions are a psychological defense mechanism against complexity. They unconsciously influence what we pay attention to, how we emotionally react, and how we make decisions. It is easier to distort data by denial or rationalisation, than to change assumptions. Group think is the order of the day.

Understanding the main assumptions that underpin the culture is the starting point for shifting behaviours.

1.6

IN BRIEF

1. Assumptions underpin organisational culture. They are the result of shared learning experiences

2. These assumptions influence perspective, behaviours and decisions

3. Some of the assumptions may run counter to the desired values and will need to be addressed before the values can gain traction

4. The first step in changing assumptions is making them visible. With the right level of expertise, this can be rapidly achieved

Cultural Assumptions

7

*The Corporate Culture Survival Guide - E. Schein (2010)

Page 9: Resetting Values in the aftermath of the banking crisis

Within the organisation there are a number of structural drivers. Values should inform the decision criteria for resetting these drivers. Primary drivers include:

Rewards & Incentives - typically receive the most attention. However, leading research by Dan Pink* and others shows that rewards and incentives often lead to worse performance.

Organisational Structure - can influence behaviour. For example, attempts to be more customer-centric may not be helped by a product-centric structure.

Performance Management - the way in which the organisation defines “good” for performance can either reinforce or hinder the desired behaviours. If behaving in line with values is seen to go unrecognised, this will not encourage change.

Physical Environment - often overlooked, but it can have a powerful effect. If an organisation claims to be “the best for customers”, yet serves them in shoddy shops or offices, the disconnect is obvious to all. Co-locating employees from different functions is a powerful way to reinforce values of collaboration.

Training & Development - do the focus and content support the values? In many cases we have observed the opposite. For example, organisations trying to focus on service values continue to centre training on sales techniques - reinforcing the very behaviours they apparently seek to change.

1.7

IN BRIEF

1. Key structural drivers in the organisation can either reinforce or hinder attempts to enforce values

2. Values should inform the criteria against which changes to these drivers should be considered - but you must be alert to unintended consequences of “gaming”

3. Leading research has shown that financial rewards are the least effective way to drive performance

Structural Drivers

8

*Drive: The Surprising Truth About What Motivates Us Daniel H. Pink (2011)

Page 10: Resetting Values in the aftermath of the banking crisis

An Integrated Approach

SECTION 2

“Everything should be made as simple as possible, but not simpler”

- Einstein

Page 11: Resetting Values in the aftermath of the banking crisis

Leadership alignment and commitment is, in our experience, the single most important factor. The Explore step focuses on two key areas in parallel:

Building Leadership Awareness Bringing into view the systemic behaviour patterns that are driven by the top team’s relationship to the “system”. This is the start of a deeply personal change as leaders reflect on their relationship with the system, and with each other.

Understanding Cultural Assumptions Cultural assumptions can quickly be uncovered by an experienced team. This exercise combines observations, interviews, and the collection of “cultural artefacts” that are the visible manifestation of the assumptions (stories, memos, photographs, policies, etc.). A cross-functional group then explores the deeper assumptions behind the analysis. The results can be surprising. At one bank, a key assumption was “we don’t really believe that putting customers first will give us the business results we need”.

At the end of this stage the leadership team can critically review the proposed values in the context of what they have begun to learn about the individual, systemic and cultural drivers in play. This includes assessing the values for relevance, congruence, applicability, adaptability and clarity. The team can also assess the scale of the challenge ahead, and decide on how much to commit to.

Step 1

OUTPUTS

1. Leadership team developing an understanding of systemic behaviour patterns and their own relationship with the “system”

2. Primary cultural assumptions identified

3. Values assessed in light of learnings

4. Scale of challenges identified

5. Commitment to continue

Explore

10

Page 12: Resetting Values in the aftermath of the banking crisis

Many drivers of behaviour may currently provide employees with powerful reasons to ignore or push back against change efforts. A “top-down” push is highly unlikely to deliver a sustainable change without addressing these unseen drivers.

A collective shift in behaviour requires individuals and groups to behave differently. Organisations that are serious about fundamental change have to essentially provide a mechanism for every work team to explore the drivers. Only by making this personal and relevant will individuals and teams begin to understand their own performance potential and to take ownership for achieving it. The unique organisational context means standarised approaches to behaviour change carry high risks. This level of intervention requires careful preparation. Typically the activities will include:

• Quantifying the performance potential available and the investment required

• Engaging and energising wider leadership and key influencers

• Reviewing the structural drivers against the modified values

• Designing the change strategy to specifically address the drivers

• Building the implementation approach, rollout plans, governance, reporting, collateral and training. Piloting on a small scale if required

• Training an in-house delivery team

OUTPUTS

1. Wider senior leadership group and key influencers involved in the design

2. Alignment on what the future picture will be

3. Change strategy - the what and how of engaging and motivating our people

4. The beginnings of a different kind of engagement - driven by an honest acknowledgement about our starting point

5. Plan for delivery agreed and resources in place

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PreparationStep 2

Page 13: Resetting Values in the aftermath of the banking crisis

The key elements of a delivery structure are illustrated below. Interventions occur across Tops, Middles and Bottoms to engage people in building solutions to address the systemic and cultural issues at play. The “journey” is orchestrated by a team of internal facilitators, supported for a limited time by a small expert core.

A “Structural Drivers” team pulls together functional experts to understand the impact on behaviour of these elements and test proposed changes, seeking opinions and ideas from the first-line and middle management teams.

Step 3

KEY DELIVERY FEATURES

1. Interventions are planned and delivered across the Tops, Middles and Bottoms

2. These are designed to be relevant and personal, and to allow employees to really explore the issues for themselves and take responsibility for making their own changes

3. A specific team address the structural drivers, with guidance from employees at all levels. With the exception of this team, the Tops, Middles and Bottoms experience the interventions in their existing teams - minimising the impact on the business

4. A high level of challenge stops responsibility from being passed upwards. The focus is on local solutions, not implementing a “top-down” approach

5. A group of internal facilitators guide the process - building change capability into the business

Delivery

12

•  Exploring the drivers of behaviour and the constraints on performance�•  Building a common language, purpose and sense of shared identity�•  Giving and taking empowerment, co-creating solutions, coaching, mentoring �•  Taking accountability, making hard decisions �

•  Providing clarity, alignment & consistently communicated story�•  Letting go of some responsibility – empowering others to be responsible�•  Role modelling required behaviours and focus�•  Building trust with each other�

Structural Drivers Team�

Executive Leadership

Team (Tops)�

Middle Management

Teams (Middles)�

First-line�Work Teams

(Bottoms)�

•  Identifying and modifying key structural drivers within the context of the BAU operation (incentives, induction, rewards, recognition, KPIs, Metrics, L&D etc.)�

•  Aligning structural interventions to desired behaviours�

•  Making the values relevant and personal to them as individuals�•  Customising behavioural descriptors for local culture and practice�•  Owning and implementing local change– taking responsibility�•  Feeding ideas to the Leadership & Structural Drivers teams�

Issues that cannot be

solved locally�

Issues to be resolved at group level�

CORE TEAM�

INTERNAL TEAM�

Issues that cannot be

solved functionally�

Mobilise � Explore� Options� Deliver�Structured Change Process�

Local Implementation �

Page 14: Resetting Values in the aftermath of the banking crisis

After the initial implementation, a key question is - how can we sustain the focus on values and behaviour? This is not a short-term journey. It typically takes three to five years to achieve a sustainable position. Sustaining the focus is essentially about understanding whether we are “walking the talk”, at the tops, middles and bottom. This is everybody’s game. Different solutions will fit different organisations, but we believe the following points deserve serious leadership attention.

1. Making the CEO personally accountable for values and behaviours in the organisation. This includes regular reporting on progress to the board and should form part of the board’s assessment of CEO performance

2. An executive position leading a team of dedicated resources reporting directly to the CEO - not part of a HR function

3. Metrics linked to behaviours and values that provide directionally good information on progress (or lack thereof)

4. Assessment every two years (or less), for every business unit to establish whether behaviours are broadly congruent with values and provide early warning of risk

5. Ad-hoc intervention by the dedicated resources at the direction of the CEO, or at the request of business unit heads who have issues to resolve

Step 4

IN BRIEF

1. This is a long journey

2. The CEO needs to retain accountability

3. Dedicated resources are required

Sustaining Focus

13

Page 15: Resetting Values in the aftermath of the banking crisis

Boxwood Ltd. 15 Old Bailey London EC4M 7EF | www.boxwood.com

Explore how we can help you to unlock the performance potential of your business

Boxwood Financial Services Team

Matt Malone ([email protected])mob +44 (0) 7889 078742 | tel +44 (0) 20 3170 7240

Paul Sweeney ([email protected])mob +44 (0) 7525 991533 | tel +44 (0) 20 3170 7240

Colin Wilson ([email protected])mob +44 (0) 7802 151273 | tel +44 (0) 203 170 5668

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