When asked what caused the Great Financial Crisis of 2008, most people will put their finger on the same issue: that a canker lurked at the core of the financial system, a rot which destroyed whole companies from within. And the name of the canker is "culture". It is "culture" which is blamed for a host of sins, from PPI miss-selling to LIBOR and FX scandals. But what does "culture" mean in a management sense? We know what it means in a social or historical or artistic setting, but what does it mean in a business setting? It is a question worth unpicking as we contemplate how we learn from the excesses of the past.
Whole industries exist to analyse what makes or breaks a corporate culture and put in place frameworks to articulate and manage them. Mission statements, value statements, codes of ethics - financial services companies have had them by the kilogram for years, yet none seemed to have any effect in reining in damaging excess and delivering behaviour that matches the professed aspirations. Time and again, seemingly rational people have behaved in ways completely at odds with the cultural standards their organisations seek to uphold. Why?
The Ashe Conformity experiments of the 1950s are illuminating. Although some take issue with the way in which the studies were set up, there is substantial evidence to support the assertion that the natural human inclination towards conformity leads individuals to suppress their own better judgement even in the face of some objective supporting evidence. We know this, so how can we mitigate against it? After all, the inclination to conform is everywhere, yet the effects seem to have been more spectacularly disastrous in financial services than in other industries. What can we learn from elsewhere?
"Natural human inclination towards conformity leads individuals to suppress their own better judgement even in the face of some objective supporting evidence."
I was intrigued a year or two ago to meet someone whose role had been as a "devil's advocate" in the product design team of a major electronics firm. Essentially, her role was to construct the opposing argument at each step along the way, so the team could ensure that they had considered every angle prior to launch, I thought this was a fascinating concept, although possibly extremely irritating for the designers themselves. I'm not sure whether the firm involved conducted controlled tests to see if this reduced recalls and resulted in more robust designs, but the concept seemed one worth exploring in the context of financial services.
While it might be quite difficult to create a designated "devil's advocate" role in every team in every department in every division of every bank, there is a more straightforward way of ensuring teams consider a range of points of view when making a decision. And that is simply to make them more diverse in the first place. Diversity, whether by ethnicity, culture, religion, sexual orientation, age or gender, is a proxy for cognitive diversity. It is true that less homogeneous teams are sometimes harder to manage, particularly in their early stages. Those pesky people who keep asking left field questions do seem to waste time. But the ability to challenge conformity and convention is precisely why they add value. They also make other people reflect more on their own assumptions, so there is a double whammy of benefits - more ideas and fewer preconceptions across the whole team.
So here is a handy tip for company chairmen and regulators alike who are keen to change organisations which seem error prone in the cultural department. Why not take a look at how diverse those teams are? If you see a team where everyone looks and behaves in the same way, perhaps you should take very concrete steps to mix it up a bit? Even when budgets are tight, it might be a good investment - saving you a few billion pounds in fines, for example. And for regulators, the diversity within a team should be one of the first things on your checklists for a deep dive. Lack of it should be an immediate red flag. And, who knows? Perhaps those diverse teams might even do a better job in making more profitable business decisions as well as keeping you out of trouble.