Posted by Tony Manwaring
'UBS $2bn rogue trader shock' proclaimed last week's headlines, the reverberations will be felt for some time to come. It's really hard to comment on the specifics without knowing much more, but it certainly gets you thinking: about the impact of behaviours and cultures, the costs and benefits of getting these right, and therefore the potential value of a respected, high performing HR function, operating at the heart of business performance, leadership and governance.
There is real comfort that UBS has a strong balance sheet so the systemic impact from this incident, however mind boggling the numbers, will surely not be same as other recent examples in the financial sector.
We should however avoid the rush to easy judgement about the importance of organisational cultures being a sufficient mitigation, at least in general terms, given what I know of UBS and its continental European sensibility, sense of heritage and longevity: UBS is an institution more than it is a company or business.
People there will, I suspect, be hurting and reflecting deeply. At least that's the growing evidence when you talk to people in senior positions in banks and financial institutions generally. In a few weeks’ time we have Joe Garner (Head of UK Retail and Deputy CEO of HSBC plc) giving a Tomorrow's Value lecture, which is also part of the Lord Mayor's Initiative - Restoring Trust in the City. HSBC is of course one of the few major banks 'we' have not had to rescue.
Having talked with Joe and others at HSBC for some time, you get a real sense of a values based business. Of course things can go wrong, but that values based culture gives a greater sense of awareness of when something feels risky and needs deeper consideration. In the words of Stephen Green, just because it's legal does not make it right. But more than that, it probably won't make it profitable, especially in the longer term.
Such a culture is no accident. Indeed Sir John Egan, who will shortly be giving the first in the series of CIPD/Tomorrow's Company 'tomorrow's adaptive organisation' roundtables with HRDs and others, puts it, if you don't seek to create a corporate culture, one will be established by default, of perhaps even greater impact for the unintentional consequences it may have.
Back to the banks: what is striking is the intensity of work being done by HR leaders with very senior support within the industry and across the professions to reshape policies and practices across the sector. There's a sense of moral purpose driving this effort fuelled by a determination that 'never again' will public bail outs be needed: the road to recovery clearly has a cultural component.
You know what, I recently talked with a very senior banker who was calibrating how best to respond to the felt need of their staff to 'be proud' to be a banker. This is significant, the pendulum has swung too far, proud professionals who truly have felt shunned, and come up with a whole set of ways of describing what they do to avoid using the 'b' word, are re-finding their voice, as well they should.
A while back, an example like UBS, whatever the rights or wrongs, would have been a further reason to keep heads down, but not anymore. We need to ask much more specific and basic questions, and to keep focus despite the ‘telephone’ numbers involved.
Was there a disconnect between what the dominant culture called for vs the perceived or actual demands being placed at the unit level? Was this compounded by performance and reward incentives? Was there an inability to communicate and manage which led to actions being taken without the knowledge of those accountable, or their capacity to intervene.
It may well be the mix of hard and soft incentives and behaviours which needs to be better understood. Indeed we are working on a major project with Aviva Investors and UNEP FI, together with BLP, Korn Ferry and PwC, with exactly this focus. What's striking is, other than in pockets, how little of this work appears to have been done.
Future solutions won't be able to entirely end such disturbing examples because, in investment banking in particular, the numbers are astronomical, and some risk at least is inevitable. Hence the needs for capitalisation and some form of structural 'firebreak'. But what they can do is to establish the understanding which will build stronger and more resilient cultures, embedded in strong professional standards, and reinforced by effective practices and leadership behaviours, actions and rewards.
They can also do something else - build a greater understanding of what's gone wrong, what can be done, and of the role of next generation HR to be an active part of creating those solutions.
This blog was originally featured on the CIPD website. View the article in its original setting here.