AUTHOR: Roger Miles
PUBLISHER: Kogan Page Ltd
REVIEWER: Paul Harwood, actuary and risk manager
Dr Roger Miles always presents on financial services conduct and culture management in an honest, commercial way. His new book, Culture Audit in Financial Services: Reporting on Behaviour to Conduct Regulators, focuses on culture audit, with an emphasis on practicality. It’s a collection of essays, some of which he has written or co-written; part history, part theory and part field guide, describing the gap between regulatory expectations and the work that financial firms must do to address cultural failings.
The book is anchored in Financial Conduct Authority requirements but draws out perspectives and conclusions from regulators in other jurisdictions – notably the Dutch regulator, the De Nederlandsche Bank, which has a long history of focusing on the psychological building blocks of financial services culture. The conclusion is that, taking on board behavioural economics and decision-making biases, there is an ideal outcome sought by regulatory conduct audits, combining purposeful culture, psychological safety and cognitive diversity. Knowing this, and being able to design systems to develop a culture that scores highly in these areas, is the rationale for the book.
One of its stated purposes is to share emerging regulatory thinking. I was surprised to learn that that regulators are seriously considering, and in some cases testing, ‘floor-walking’ to assess culture. This approach involves specialist regulators dropping in on people, groups or meetings without notice in order to probe culture. This instinctively feels like a bad way of learning anything, given that answering questions from a regulator who is randomly popping in is anything but psychologically safe. There is no detail of the outcomes from this testing. Perhaps it is a more useful approach than first reading – or my cynicism – suggests.
Rachel Wolcott writes on using technology and big data techniques to define culture. This was interesting. In several places, including in her chapter, it is noted that surveys are less-than-perfect measures of culture. Alternatives include surveillance, direct observation and other types of intelligence gathering. The book’s conclusion is that these approaches do not work and may, in fact, be harmful. That said, novel approaches will doubtless continue to be investigated.
There are separate chapters describing two different culture research tools: Barrett Analytics and CultureScope, both of which were new to me. These chapters include an outline of and case studies for each theory, and are full of suggestions about how to use the output to improve culture. It is hard to escape the conclusion that the tools are different approaches to surveying values, and so subject to the same survey bias that elsewhere is called out as sub-optimal. If this is the reality of culture assessment, understanding that is a useful conclusion in itself.
The contributions are well curated and drawn from a wide pool of experience.
With such a broad topic and range of authors, there are inevitably differences of tone. These different perspectives add to the subject, reflecting the honest way in which it is tackled and recognising that much is not yet settled about culture assessment.
“The book is honest about the practical difficulties in understanding and assessing culture”
Sources are well signposted and the reading list, complete with recommendations, is useful.
The importance of management information on culture is a theme throughout, with two chapters of suggestions that build on the theme of purposeful culture. These dovetail with the culture tools, adding to the coherence of the approaches presented.
This is a worthwhile book that summarises the regulatory background from a UK and international perspective and includes diverse viewpoints. There are plenty of questions and lists of factors that will support any culture audit design. It is honest about the practical difficulties in understanding and assessing culture, and the fact that there is no settled approach – and it shares good practice, highlighting some available tools.
On reflection, it is difficult to escape the conclusion that a well-managed firm will have a good culture by definition, and that the regulatory culture audit is really an audit of management quality. If that is the case, the evolution of conduct management could become very interesting indeed.
