Oliver Wyman experts explore how to improve your risk culture and avoid the common mistakes that can lead to financial and reputational damage.

David Howard-Jones

Hello, I'm David Howard-Jones, a partner in Financial Services practice based in the Sydney office. And I'm here with

Catherine Brown

Catherine Brown, partner in the Sydney office, previously London office. And before that a banker in London and in New York.

David

Catherine, you've worked on risk culture for over a decade now. What is it that makes you so passionate about the topic?

Catherine

Personal experience is a lot of it, David. Before Oliver Wyman, I worked at Lehman Brothers, an American investment bank which collapsed in 2008. There's a lot of commentary in the public space about Lehman Brothers and its culture. My experience of it, however, was positive in many regards. It was a culture that was collegial. It was a culture that was entrepreneurial and a real sense of we're in this together and we're building something.

But there were aspects of the culture that that were perhaps unexamined or not challenged. I remember working in the Netherlands with Lehman for a couple of months to look at a new subprime mortgage lender that they were setting up there and asking questions about processes and controls and sort of being challenged or shut down on that.

Whilst there are very many positives, there were there were blind spots.

David

They were really celebrated for having a good culture. How did the wheels come off so badly?

Catherine

I think it's the parts that remained unexamined. There was an optimism that I observed that maybe things didn't quite have the proper controls or maybe the products were quite complex but they would be successful, and it would be okay. We were also building something. I think perhaps a bit of a naivete and not enough rigor in really examining and questioning how things could go wrong.

Positivity bias, perhaps.

David

Positive, but with gaps.

Looking at the results we had in Australia recently with the regulatory survey on risk culture across 61 entities, one thing that was strikingly clear was that leadership were systematically more optimistic about the culture than people at the grassroots, the people who didn't have management responsibilities. It varied by firm.

I thought it was really striking how some of the firms — where I think they do genuinely have a more complete culture, not just optimistic, but questioning as well — those are the ones where the gap was narrower or there was more consistency between how leadership saw the culture and people at the grassroots. I do think that's critical.

I think it's very hard for leaders to really know what's going on. You know, if you're trying to run a firm of thousands of people, you actually don't know what they're doing all the time.

The only way to fill in that gap is to understand the culture.

Catherine

You do hear that good leaders aren't know-it –all, they’re learn-it-alls. It's my experience as well coming in to help companies and help leaders understand the culture that they're almost always surprised by the results. They're surprised by what it is that that we find.

David

Do you think, there won't be a recipe for this, but what would be your recommendations to people who want to get this right?

Catherine

To get to grips with culture and work out what the blind spots are. It requires forensic work, and it requires a set of capabilities that many of our financial services clients and many corporates in general don't have. Any organization is a collection of different subcultures, hundreds of them. If you want to change things, then you've got to really get under the bonnet of what the sort of cultures looks like. You've got to be very precise around what it is that you want to change.

David

That sounds like it's more like an ongoing process than something that's one and done.

Catherine

Yeah, sort of like reputation. I think I heard that from you. It's something that is very much built over time, but also like reputation, it can be shattered. It can be destroyed quite quickly by the wrong actions of leaders or of individuals if it's not cared for.

How do you do this well?

David

First of all, it's critical to know what culture you want. That takes some time to describe, do you want an inquiring culture? Do you want a supportive culture? What does supportive mean? What would a not supportive culture mean? It takes some serious design work to actually think through those things and be able to link them to tangible behaviors which you think would exhibit that.

Second of all, you need to have philosophy of why it's important. There's a lot of research out there about systems-based leadership, but systems only go so far. There's always going to be a time where people have to have choice, or you won't have an engaged workforce.

People need to know what's expected of them and filling in those gaps. To what you were saying earlier, it's about weeding the garden. Culture is the sum of how people behave. It takes time to change a culture, and it takes time to establish the culture you want.

It takes time to make sure it's still there to monitor and nurture it. It's in all those thousands of choices that people make, that culture is built. It's those things really and being clear where you're headed, making sure you know how to watch it, check it's there, support it, nurture it, and keep it going.

Catherine

Speak up is an interesting example that comes up in so many different contexts. For example, when we work with boards, when things go very wrong at a large company, there's usually somebody on the board who says, well I knew it and maybe they said something, maybe they pushed hard enough, and maybe they didn't.

For everything that goes very wrong is usually somebody who had a hunch. We talk about speak up. We talk about listen up as well. People say things, but then are the people around them receptive to do something about it? It's such a complex issue to shift behaviors on because the reasons for not speaking up or for not listening up really vary by organization, right?

You might not speak up because you don't think it's going to be listened to or you might not speak up because you don't think leaders mean it when they say to speak up, or it might be that you are speaking up, but the mechanisms for taking what it is that you've said and doing something about it or broken.

That's just one of the many things that so many of the companies we work with are trying to change and struggling with. It's a good illustration of just how forensic and precise you need to be in understanding what the barriers are.

David

Yes, speak up is really important because when I look at the leadership teams we've worked with, there are easy traps. For example, you mentioned Lehmann, overly collaborative, insufficient challenging questioning. Bringing in that challenging questioning without eroding the team dynamic takes a lot of trust. I was at a board session recently where I thought there was a wonderful debate around a contentious topic.

Now, going into the strategy day, I think we all knew that there was a particular individual who cared about a particular topic. They brought it up and it was an uncomfortable conversation. But I left the room feeling like that is exactly a culture I'd like to be a part of where people can bring up a topic that's difficult, debate it, close it, and agree how to address it.

Now, one of the things that was in the Australian Prudential Regulation Authority (APRA) review of Commonwealth Bank of Australia (CBA), which came out was insufficient challenge and you can see where that can come from too, because if you have a team of rivals, as it were, thinking back to Abraham Lincoln, the easiest way to avoid yourself getting too much uncomfortable scrutiny is not providing that to others.

It's easy for a culture to become overly collaborative in that way and not have a healthy degree of challenge. In this board strategy day, I saw how it needs to be a slightly uncomfortable conversation because if it really is a difficult choice, there are winners and losers. Not that they are not all on the same team, but you know, that means that it will be difficult.

You need to have a culture which actually goes that was the difficult conversation we needed to have, still have it, and have the next one.

Catherine

They got to be uncomfortable with the fact that changing culture and changing behaviors is messy and non-linear. We're very accustomed to big companies’ sort of thinking about defining a plan and then implementing the plan and then measuring to make sure that it's been implemented, which is all, it's all quite linear.

You're setting the parameters upfront and then it's kind of merciless execution. You can't do that with culture. It's very organic, it's messy and it's how people behave and how they feel. It's very different. That's where a lot of companies go wrong and not understanding that this is inherently human and therefore a bit messy or just non-linear.

That needs to be factored in. There's a bit of a capability gap many of our clients really understand — what is it that motivates adult humans, how do we connect with them and make them want to do things differently? How do we guide them? Where does the power and the motivation sit within the organization?

Where do people connect and so on? It's a lot harder than implementing a big program. It's much more grassroots.

David

Yeah, that's right and that connects to the thought I had about engagement. A positive culture actually gets more engaged colleagues. The colleagues need to feel like there's purpose to everything they're doing, and culture can be a key part of that. As you say, it's not linear. There's no formula. You can't set it and forget it.

Catherine

When I look at the companies that have good cultures, the companies that do it well, they're never complacent. It's not a program. It's something separate. It's not something that you finish. They're always telling the stories. They're cognizant that it evolves. They're always holding up the mirror and questioning whether they're living up to their values, their purpose, and thinking about what the experiences are of the people in the organization on a day-to-day basis.

David

Catherine, tell me more about the importance of leadership and your advice to them to make sure they know what the culture is, and build and maintain the right culture.

You need to be a learn-it-all, nota know-it-all as a leader. Culture, risk culture in particular, is often a blind spot. There's an optimism bias. Leaders tend to be quite optimistic about risk culture in the organization. But when you look at what employees are experiencing, it's worse.

It's often not the case, so it shouldn't go unexamined. The third point is on capabilities within the organization to understand how human beings behave. There are some really interesting statistics.

Forgetting curve, for example, is a is a piece of research that's been around for ages that says that adult memory retention is actually very poor and 90% of what a human adult learns, they will forget within a month or so if it's not reinforced.

It's a simple thing, but most corporate trainings don't take that into account. You're investing all this time in training people, but they're not remembering much of it. It's just one example of the capability gap that leaders need to be aware of and many organizations experience.

David

Catherine, thank you for talking about risk culture today. Such a fascinating conversation.  I'm really drawn by the idea of the forgetting curve. Given that, I suggest that our best advice to our clients and colleagues is they watch this video lots of times, so they don't forget the important messages. Catherine, thank you very much and thank you for listening.

Catherine

It's been a pleasure, David. Thank you.

This transcript has been edited for clarity.

Oliver Wyman experts explore how to improve your risk culture and avoid the common mistakes that can lead to financial and reputational damage.

David Howard-Jones

Hello, I'm David Howard-Jones, a partner in Financial Services practice based in the Sydney office. And I'm here with

Catherine Brown

Catherine Brown, partner in the Sydney office, previously London office. And before that a banker in London and in New York.

David

Catherine, you've worked on risk culture for over a decade now. What is it that makes you so passionate about the topic?

Catherine

Personal experience is a lot of it, David. Before Oliver Wyman, I worked at Lehman Brothers, an American investment bank which collapsed in 2008. There's a lot of commentary in the public space about Lehman Brothers and its culture. My experience of it, however, was positive in many regards. It was a culture that was collegial. It was a culture that was entrepreneurial and a real sense of we're in this together and we're building something.

But there were aspects of the culture that that were perhaps unexamined or not challenged. I remember working in the Netherlands with Lehman for a couple of months to look at a new subprime mortgage lender that they were setting up there and asking questions about processes and controls and sort of being challenged or shut down on that.

Whilst there are very many positives, there were there were blind spots.

David

They were really celebrated for having a good culture. How did the wheels come off so badly?

Catherine

I think it's the parts that remained unexamined. There was an optimism that I observed that maybe things didn't quite have the proper controls or maybe the products were quite complex but they would be successful, and it would be okay. We were also building something. I think perhaps a bit of a naivete and not enough rigor in really examining and questioning how things could go wrong.

Positivity bias, perhaps.

David

Positive, but with gaps.

Looking at the results we had in Australia recently with the regulatory survey on risk culture across 61 entities, one thing that was strikingly clear was that leadership were systematically more optimistic about the culture than people at the grassroots, the people who didn't have management responsibilities. It varied by firm.

I thought it was really striking how some of the firms — where I think they do genuinely have a more complete culture, not just optimistic, but questioning as well — those are the ones where the gap was narrower or there was more consistency between how leadership saw the culture and people at the grassroots. I do think that's critical.

I think it's very hard for leaders to really know what's going on. You know, if you're trying to run a firm of thousands of people, you actually don't know what they're doing all the time.

The only way to fill in that gap is to understand the culture.

Catherine

You do hear that good leaders aren't know-it –all, they’re learn-it-alls. It's my experience as well coming in to help companies and help leaders understand the culture that they're almost always surprised by the results. They're surprised by what it is that that we find.

David

Do you think, there won't be a recipe for this, but what would be your recommendations to people who want to get this right?

Catherine

To get to grips with culture and work out what the blind spots are. It requires forensic work, and it requires a set of capabilities that many of our financial services clients and many corporates in general don't have. Any organization is a collection of different subcultures, hundreds of them. If you want to change things, then you've got to really get under the bonnet of what the sort of cultures looks like. You've got to be very precise around what it is that you want to change.

David

That sounds like it's more like an ongoing process than something that's one and done.

Catherine

Yeah, sort of like reputation. I think I heard that from you. It's something that is very much built over time, but also like reputation, it can be shattered. It can be destroyed quite quickly by the wrong actions of leaders or of individuals if it's not cared for.

How do you do this well?

David

First of all, it's critical to know what culture you want. That takes some time to describe, do you want an inquiring culture? Do you want a supportive culture? What does supportive mean? What would a not supportive culture mean? It takes some serious design work to actually think through those things and be able to link them to tangible behaviors which you think would exhibit that.

Second of all, you need to have philosophy of why it's important. There's a lot of research out there about systems-based leadership, but systems only go so far. There's always going to be a time where people have to have choice, or you won't have an engaged workforce.

People need to know what's expected of them and filling in those gaps. To what you were saying earlier, it's about weeding the garden. Culture is the sum of how people behave. It takes time to change a culture, and it takes time to establish the culture you want.

It takes time to make sure it's still there to monitor and nurture it. It's in all those thousands of choices that people make, that culture is built. It's those things really and being clear where you're headed, making sure you know how to watch it, check it's there, support it, nurture it, and keep it going.

Catherine

Speak up is an interesting example that comes up in so many different contexts. For example, when we work with boards, when things go very wrong at a large company, there's usually somebody on the board who says, well I knew it and maybe they said something, maybe they pushed hard enough, and maybe they didn't.

For everything that goes very wrong is usually somebody who had a hunch. We talk about speak up. We talk about listen up as well. People say things, but then are the people around them receptive to do something about it? It's such a complex issue to shift behaviors on because the reasons for not speaking up or for not listening up really vary by organization, right?

You might not speak up because you don't think it's going to be listened to or you might not speak up because you don't think leaders mean it when they say to speak up, or it might be that you are speaking up, but the mechanisms for taking what it is that you've said and doing something about it or broken.

That's just one of the many things that so many of the companies we work with are trying to change and struggling with. It's a good illustration of just how forensic and precise you need to be in understanding what the barriers are.

David

Yes, speak up is really important because when I look at the leadership teams we've worked with, there are easy traps. For example, you mentioned Lehmann, overly collaborative, insufficient challenging questioning. Bringing in that challenging questioning without eroding the team dynamic takes a lot of trust. I was at a board session recently where I thought there was a wonderful debate around a contentious topic.

Now, going into the strategy day, I think we all knew that there was a particular individual who cared about a particular topic. They brought it up and it was an uncomfortable conversation. But I left the room feeling like that is exactly a culture I'd like to be a part of where people can bring up a topic that's difficult, debate it, close it, and agree how to address it.

Now, one of the things that was in the Australian Prudential Regulation Authority (APRA) review of Commonwealth Bank of Australia (CBA), which came out was insufficient challenge and you can see where that can come from too, because if you have a team of rivals, as it were, thinking back to Abraham Lincoln, the easiest way to avoid yourself getting too much uncomfortable scrutiny is not providing that to others.

It's easy for a culture to become overly collaborative in that way and not have a healthy degree of challenge. In this board strategy day, I saw how it needs to be a slightly uncomfortable conversation because if it really is a difficult choice, there are winners and losers. Not that they are not all on the same team, but you know, that means that it will be difficult.

You need to have a culture which actually goes that was the difficult conversation we needed to have, still have it, and have the next one.

Catherine

They got to be uncomfortable with the fact that changing culture and changing behaviors is messy and non-linear. We're very accustomed to big companies’ sort of thinking about defining a plan and then implementing the plan and then measuring to make sure that it's been implemented, which is all, it's all quite linear.

You're setting the parameters upfront and then it's kind of merciless execution. You can't do that with culture. It's very organic, it's messy and it's how people behave and how they feel. It's very different. That's where a lot of companies go wrong and not understanding that this is inherently human and therefore a bit messy or just non-linear.

That needs to be factored in. There's a bit of a capability gap many of our clients really understand — what is it that motivates adult humans, how do we connect with them and make them want to do things differently? How do we guide them? Where does the power and the motivation sit within the organization?

Where do people connect and so on? It's a lot harder than implementing a big program. It's much more grassroots.

David

Yeah, that's right and that connects to the thought I had about engagement. A positive culture actually gets more engaged colleagues. The colleagues need to feel like there's purpose to everything they're doing, and culture can be a key part of that. As you say, it's not linear. There's no formula. You can't set it and forget it.

Catherine

When I look at the companies that have good cultures, the companies that do it well, they're never complacent. It's not a program. It's something separate. It's not something that you finish. They're always telling the stories. They're cognizant that it evolves. They're always holding up the mirror and questioning whether they're living up to their values, their purpose, and thinking about what the experiences are of the people in the organization on a day-to-day basis.

David

Catherine, tell me more about the importance of leadership and your advice to them to make sure they know what the culture is, and build and maintain the right culture.

You need to be a learn-it-all, nota know-it-all as a leader. Culture, risk culture in particular, is often a blind spot. There's an optimism bias. Leaders tend to be quite optimistic about risk culture in the organization. But when you look at what employees are experiencing, it's worse.

It's often not the case, so it shouldn't go unexamined. The third point is on capabilities within the organization to understand how human beings behave. There are some really interesting statistics.

Forgetting curve, for example, is a is a piece of research that's been around for ages that says that adult memory retention is actually very poor and 90% of what a human adult learns, they will forget within a month or so if it's not reinforced.

It's a simple thing, but most corporate trainings don't take that into account. You're investing all this time in training people, but they're not remembering much of it. It's just one example of the capability gap that leaders need to be aware of and many organizations experience.

David

Catherine, thank you for talking about risk culture today. Such a fascinating conversation.  I'm really drawn by the idea of the forgetting curve. Given that, I suggest that our best advice to our clients and colleagues is they watch this video lots of times, so they don't forget the important messages. Catherine, thank you very much and thank you for listening.

Catherine

It's been a pleasure, David. Thank you.

This transcript has been edited for clarity.