Date: 06/08/13 Duration: 00:23:14

In this podcast Simon Lloyd, HR Director of Santander, Simon Thompson, Chief Executive of the Chartered Banker Institute, Andrea Eccles of the City HR Association and CIPD Head of Public Policy Ben Wilmot discuss the need to change the culture of the financial sector to repair the trust in it that has been lost.

Philippa Lamb: In a recent CIPD survey of the financial sector less than one in ten workers felt that problems over banking culture had now been solved. Almost two thirds reported that people in their organisation were still being rewarded in a way that incentivised inappropriate behaviour and less than four in ten said they'd seen any initiative by senior executives to change the culture in the last year.

The report called Rebuilding Trust in the City questioned the bankers themselves and the findings demonstrated in the clearest possible terms that the sector still has a long way to go on the journey to repair its credibility and regain the respect it once commanded.

Back in June the Parliamentary Banking Commission produced a raft of recommendations which it believes could bring about positive change in the way the City does business. We’ll have more on that later in the Podcast, but we're all familiar with the state of play there now, the string of high profile failures, the shocking revelations about poor practice. So how did a profession once renowned for its caution come to this? Here’s the chief executive of the Chartered Banker Institute, Simon Thompson.

Simon Thompson: The single cultural trait I think we've lost in banking over the past 20 years is the value of stewardship which is perhaps an old-fashioned term for looking after customers’ money before you try and make money for yourself and your institution and I think we see that in all aspects of banking: retail banking, business, corporate banking, investment banking.

PL: The pressure on the banking sector to change its ways is growing ever stronger but five years on from the global crash has anything really changed? Ben Willmott is one of the authors of the CIPD report.

Ben Willmott: 50% of employees said they had noticed an initiative led by senior managers to change culture in the last 12 months. So obviously some movement but that still leaves half the banking population who have not noticed any sort of culture change.

PL: Of course changing culture across an entire sector is a complex and ambitious goal. How do you even begin to reach every sort of financial sector worker at every level?

BW: When you ask respondents how do you actually change culture regulatory reform is important but actually it’s just as much down to senior leadership, it’s down to the extent to which staff are engaged and consulted and it’s about the sort of culture which enables people to hold up their hands and challenge when they see something going wrong, so ensuring there is protection for whistle blowers for example.

PL: Simon Lloyd is HR director at Santander.

Simon Lloyd: Historically high level strategic decisions have been made which with hindsight have not been the best ones. Were they done deliberately? No, I don't think anybody would think that some of the models we've ended up with are the right ones but a decision was taken and I think one of the cultural traits which probably needs to be addressed is the willingness to admit that you’re wrong sooner rather than later.

PL: According to Simon Thompson huge efforts are already being made.

ST: There's been some structural change already. There's been regulatory change already, we have the new regulators in place. There's been a change in the leadership of all the major banks and I think when you look at the messaging that comes out from the senior teams of the banks, it’s in exactly the direction that certainly at the Chartered Banker Institute we want to see. It is about bringing back that sense of a customer focused banking profession but as the Parliamentary Commission have rightly said this takes a generation to change. We're going in the right direction but we're trying to, as it were, turn around two decades of banking forgetting that it was a profession and not having the customer at the heart of banking.

PL: And that brings us to the heart of the matter: who and what have been driving these bad decisions. The Parliamentary Commission took the view that the primary stakeholder of any bank should be its customers and argued that too often in reality it was in fact its shareholders. The CIPD research agreed; less than half of respondents named customers as their organisation’s most important stakeholder. Simon Lloyd says the changes at Santander are beginning to redress the balance.

SL: We would say now that our stakeholders if you like in this order would be our people, our customers and our shareholders/stakeholders because within that third category I would put community, I would put regulator, I would put politicians. I think there's a lot in there, not just shareholders, but the people we start with deliberately are our people.

PL: And obviously that's the answer, one we’d want to hear but do you think it’s representative of your fellow banks in the sector?

SL: In terms of the other retail banks that we come across and I'd put Barclays and I'd put RBS in that category, despite the fact they have investment banking arms, I think yes, I think they are going in that way and I think there's a recognition that the banking sector as a whole, however you define it, needs to rebuild public confidence and trust and consequently how do you do that? You actually really do need to start by going back to core values and I think all the banks in their own ways are doing that.

PL: Do you?

SL: Yes I do genuinely.

PL: Have you seen a marked difference since 2008?

SL: Probably not since 2008, I think since 2010 probably when I think the banks had fully understood what had happened and why it had happened and all the rest of it, then I think that started to change and people started to change things.

PL: For many areas of the financial sector though money is still king but having shareholders to answer to shouldn’t necessarily be a problem; after all other sectors are accountable to theirs. So what is it about banking that encourages inappropriate behaviour?

BW: To some extent it’s the degree of risk.

PL: So the numbers are bigger?

BW: The numbers are bigger so you may have a focus on short term objectives where you have that type of short-termism in the financial services sector, as we've seen it can go very, very badly wrong. A third of respondents still identify shareholders as their bank’s most important stakeholder. So until we shift that mindset quite fundamentally we aren’t going to see any real culture change.

PL: An interesting conundrum also emerged from the survey about organisational values. Encouragingly most of the people questioned felt their senior managers were driven by strong values but they were less confident about their middle managers. Simon Thompson.

ST: We are very focused on the middle segment because that's where the real sort of cultural DNA of an organisation rests and where those day to day decisions are made that affect customers for good or bad.

PL: But presumably their attitudes are driven by the requirements placed upon them by their big bosses aren’t they? It’s all about targets.

ST: They are, it’s about targets, it’s about setting the right targets isn’t it that instead of setting targets that are purely around income, revenue and profit it’s targets for service and doing the right thing. I am heartened by the fact that certainly most of the banks that I'm aware of have over the past two or three years replaced sales points and sales targets on the retail side of the banks at least with a proper balanced scorecard approach; you know, banks are talking quite rightly about rewarding not just the what you achieve but how you've achieved it.

PL: Heartening indeed that senior management has broader criteria for success than profit but as Ben Willmott points out the seeds of lasting change need to be planted at the very top of the organisation in the board room.

BW: It was actually the senior managers in the sample who were more likely to say that different leadership at board level would make a difference...

PL: That's quite surprising isn’t it?

BW: ...than employees in the rest of the organisation. And that makes you suspect there is something around, well actually, what are senior managers seeing in terms of the behaviours of the C suite executives that is making them think that actually we need to see a change in senior leadership. I think unless we get real genuine cultural change in the boardroom you won't actually see real change in an organisation.

PL: Santander has been working hard to improve culture, values and standards since the financial crisis hit. Simon Lloyd outlined their strategy for me.

SL: What we’ve done is we have determined a new set of values so we have four core values. We have defined the behaviours because with values you can come up with four words and they’ll mean anything and you can get them to mean anything. So we've defined the behaviours that we expect out of our people. We have started putting those into our performance management systems in a positive way and we are judging people, and actually we have done this for a little while now, not only on what they achieve but how they achieve it and that's very important to us. We've reviewed our incentive schemes, we've reviewed our bonus schemes so we're getting alignment throughout the piece because you need all your levers to be aligned to achieve the change that you want.

PL: So reward will be tied to these?

SL: Yes very much so.

PL: Santander is alive to the problem of those at the top embracing ethical organisational values while middle rankers may be less committed because they’re under pressure from short term targets. Simon Lloyd argues that a cohesive change programme is the answer.

SL: If you take the short term targets piece which has certainly been an issue in the past those ultimately are set by the people at tops of banks rather than the people in the middle so I think you need that completely aligned approach from the top of the organisation. If it is aligned it will go through your middle management and it will go down.

PL: And do you feel confident that you've achieved that at Santander?

SL: Yes because a lot of the people we're talking to in the first instance are that middle management layer.

PL: Do you think the bank will take a financial hit from that decision?

SL: Our view is now we don’t think it will at the end of the day. I think it depends on how you look at your entire strategy. We've got to a place where we feel comfortable that the changes we are making will drive our income and profitability forward and I think if you look at sustainable business models it’s about building relationships with customers and you have to take that step.

PL: So you really do see the business case for these changes?

SL: I absolutely see the business case for these changes, I don't think it’s a great model to take a load of income in and then five years, ten years later pay it all back again.

PL: Perhaps it’s not a real surprise to learn that the survey results flagged up financial reward as more of a motivator in the banking sector than in other sectors. Salary was the biggest attraction to the industry for a third of all the respondents. With that comes a set of management challenges but Simon Lloyd isn’t convinced that bankers are actually as greedy as the press would have us believe.

SL: It’s a very interesting one and particularly in the retail banking sector and if I look at the vast number of our people who deal directly with customers I'm not convinced pay is a motivator because…

PL: But it’s self reported isn’t it in the CIPD survey?

SL: It’s interesting to know and you can never get behind the data and all the rest of it but if I go out and look at our people in our branches and in our contact centres who I talk to regularly and I know what they are paid you would not say that pay is a major driver and motivator for them. It’s really about creating a sense of purpose and why are you there and that becomes a key motivator for people.

PL: Well that's certainly ideally what you’d hope for isn’t it in your workforce but you do think that's there because obviously…

SL: I'd say that I think the banking industry has recognised it needs to be there and it’s now starting, but is it there at the moment, I would not say so.

PL: So that backtracks into how you recruit in future presumably?

SL: Very much so and I think a lot of organisations would recognise that you really need to recruit on behaviours now.

PL: So are you revising your recruitment policies then at Santander?

SL: We revised our recruitment practices 12, 18, 24 months ago. We did a lot of market research about our brand, what it meant to people.

PL: So what’s different?

SL: We genuinely look for people. I think a number of things are different actually, we take more time to get the right people, which we think is hugely important. We are very focused on value/behaviours recruitment. We are looking to get people who will fit what we want to deliver for the customer going forward.

PL: Recruitment practices are under the spotlight across the sector but given that the City’s deep pockets attract the brightest graduates from every discipline it may be that the capacity for this different way of operating already exists there. According to Ben Willmott the way to tap into that potential is to give permission to people already working in the sector.

BW: It’s about having a different approach to looking at the talent you have in your organisation and making the most of that talent rather than thinking this cohort of employees, i.e. people typically often working in investment banking in some shape or form are going to drive the real growth, so these are our superstars we need to reward them in an exceptional way and the other people are just going to chug along and they’re important but they’re not the stars. I think it’s looking at the workforce as a whole, looking at the drivers of employee engagement across the piece and having a very clear idea of how you are going to develop people and make the most of their potential in the organisation in whatever area that they work in.

PL: HR is central to driving forward and embedding all the changes we've talked about. Here’s Ben Willmott.

BW: HR has a real opportunity to re-examine its role in terms of corporate governance and managing people risk so how do you recruit people? How do you remunerate? How do you manage and develop people in a way that is aligned with your organisation’s values? Also what measures and metrics are there that might show that you have a problem within an organisation? So if you've got high levels of stress-related absence for example, what indications are there which might suggest that people are under stress to behave in ways that might create a risk for the organisation? Or looking at your leadership management cohort do you really know where your strengths and weaknesses lie? How do you assess leadership capability within the organisation? HR needs to get a handle on those sorts of issues.

PL: The Banking Commission claimed that remuneration had incentivised both misconduct and excessive risk taking. It suggested a range of ways to put that right and the one that grabbed most headlines was deferring bonuses for up to ten years in some cases. In the CIPD survey a third of all the respondents reported that bonuses were already down overall but if pay isn’t the cure-all it once was how should the sector go about retaining good people now? Andrea Eccles is director of the City HR Association which is developing a range of toolkits to help HR support good organisational culture in the City.

Andrea Eccles: So we have to think of other HR tools and devices that we can use to retain these people and to motivate them.

PL: What sort of things might that be?

AE: Training, for example, more defined succession plans so that people can see how their careers are going to develop within these banks. It could be by other non cash incentives that just generate more of an employee feel-good factor within the organisation.

PL: Other Banking Commission recommendations included better protection for whistle blowers, putting more women on trading floors, and criminalising reckless behaviour but are they good ideas and would they work? Here’s Simon Thompson’s response.

ST: The Parliamentary Report has been very helpful in making a whole series of recommendations.

PL: The Banking Commission?

ST: Yes the Banking Commission, which the government, as I understand, is committed to taking forward. They won't come up with the formal response until the autumn but all the signs are that they pretty much accept the direction of travel and I think when you look at the structural changes that are coming in terms of ring fencing, when you look at regulatory reform we have the new regulators in place. They only started their work from April this year so it’s too early to say but they are committed to moving away from a culture of tick-box regulation to focusing more on looking at prudential regulation, on culture of firms, on understanding there's a broad risk to the system and making sure financial services, broadly, and banks in particular are doing the right thing. Then you look at reforms the industry is now bringing forward through the Chartered Banker Institute and the Professional Standards Board for professional standards and the framework for individuals. So I think things are moving broadly in the right direction but we are very much at the start of a long journey.

PL: All this is geared to make people think harder about the implications of their split-second decisions and the drive to establish solid professional standards industry-wide is a key strand.

ST: It seems a very strange anomaly to me that we expect our doctors to be qualified, teachers to be qualified, accountants, gas fitters, even nightclub bouncers are required to have standards but the bankers they might throw out of a nightclub aren’t required to be qualified. It seems a nonsense to me it really does. I mean professional qualifications are not the be all and end all, just because you've taken a qualification doesn’t mean you’re demonstrating the right values and behaviours. But without the kind of technical knowledge and skills, professional knowledge and skill, you can be committed to the right values, to ethical decision making but you can't understand what the implications of your decisions might be unless you've got the technical competence to be able to think through the possible outcomes for your customers, for yourself, for your organisation and so on.

PL: A framework for those professional standards is now being developed by the Chartered Banker Professional Standards Board and the Banking Commission wants it to reach every single bank employee in the UK.

ST: That's a big task but we're up for it.

PL: Yes I mean as you say clearly it’s early days, a lot of this stuff is in the making but what sort of professional training do you envisage?

ST: This may sound really odd to listeners who don’t work in the banking sector but actually many bankers haven't been learning about banking recently which is quite surprising. I would quite like my doctor to know about medicine, I would like my teacher to know a bit about pedagogy and classroom management and I would quite like my bankers to know about banking.

PL: So they just know how to do their job is that what you’re saying?

ST: They know how to do their job, they may have developed degree level skills in generic business and so on but they haven't learnt necessarily about core banking skills, credit, lending, risk and so on. This is a generalisation, clearly there are many, many bankers who have done but there are many who haven't and we still see elements. I was looking at the recruitment pages of a major UK bank yesterday and if you join them as a graduate in the finance stream they’ll put you through an accounting qualification. If you join them as an IT graduate they’ll put you through an IT qualification. If you join in an HR stream they’ll put you through the CIPD qualification, which is fantastic. However if you join as a banking graduate they won't put you through a banking qualification. I think that's ridiculous.

PL: Simon Lloyd, HR director at Santander agrees that while they’re no magic bullet qualifications must be a good thing.

SL: I've been in financial services 25 years. I remember when I came into the profession the level of training that branch managers, regional managers, would have had about the history of banking, banking transactions, the law relating to banking, and despite the fact I was a lawyer, they knew far more about it than I did. I think banks benefited from that and I think putting some of that professionalism back in will be hugely good for the industry.

PL: Because obviously there's training and then there's qualifications aren’t there? You know you can train people in-house, but it is weird don’t you think that most people working in banking aren’t qualified as bankers?

SL: Well it depends what a qualification of a banker is. We have a lot of people who will be on the counters, who will just be taking money in over the counter. What sort of qualification would you actually need to be able to do that? So I think there's a piece about defining who needs qualifications, what qualifications they need and what they should consist of. Are qualifications a good thing that the industry should have more of? Absolutely. I don't think there's any doubt about that.

PL: Andrea Eccles’ HR toolkits are being specifically designed to deal with this issue.

AE: There are a series of toolkits that are being developed that we hope will very much help organisations to first of all look at cultural issues and then to develop values and the right HR initiatives alongside those values to actually get them embedded within the organisation.

PL: So what sort of things might we be talking about in these toolkits?

AE: Well one of the things that is actually in development at the moment and is due to be launched shortly is a toolkit called Performance With Integrity which is how you align and measure performance against the corporate values. So it looks at how do you develop your values? How do you onboard people against those values? How do you make sure you measure those values, the sort of behaviours that people exhibit throughout the year and then you look at the degree to which individuals have lived the values in the execution of their performance. And finally of course that brings in the question then of what sanctions do you have for people who are not living those values. So the Performance With Integrity toolkit will address each of those issues.

PL: And despite everything, for Ben Willmott the future of the banking industry looks bright.

BW: It’s a fair point that this will take a number of years and I think hopefully as you see banks re-examining their core purpose and looking at what is their contribution to society and people hopefully coming through as the next generation of recruits are being enthused by that new sort of purpose which is key to the growth of the economy. I think there is a real positive story behind banking that just needs to get told a lot more and I think if you go back to banks in the community and the relationships that small businesses used to have with their bank managers, that was a very personal and positive relationship and I think if we can get back to a banking system that creates those types of relationships then it becomes a positive story and helps to underpin change to a new culture.

PL: And Simon Thompson has high hopes for banking too.

ST: Banking needs to be a profession again. There are lots and lots of bankers who have always displayed the qualities of professionalism so we want to help them feel proud about being bankers again. We want to bring some pride back into banking, that's one of the things that professionalism will do and in a way until we can be proud to be bankers again it’s going to be quite hard to ask the general population to be proud of our achievements. We need to be proud of ourselves first and then perhaps society can be proud of us too.