Reacting to the intense scrutiny of the financial and insurance sectors by the Royal Commission and Apra’s recommendations, Corporate Australia has gone into a bit of a tailspin about what they should be doing that they are not already. How quickly can they put in place some sort of defensive shield against the regulator’s blowtorch that has suddenly turned on them?
The reality is there is no quick fix, no band-aid that can be applied. A kneejerk reaction would be a real missed opportunity for organisations to get their house in order for the long term. The bigger question is not how they got into this mess in the first place – a mess of their own making – but how do they retrofit a culture that has integrity and meets the needs and aspiration of all stakeholders, their customers, their employees, their shareholders and society at large.
The business case for doing so has been well proven, that leaders who manage for all their stakeholders outperform those with shareholder only priorities. Most organisations already have in place the values and conduct risk protocols that Apra is recommending; what they lack is the conviction to put them into daily practice. Business needs to move beyond paper compliance and actively breathe life into those protocols as the foundation of how they do business. Current constructs of leadership need to evolve into an ethical leadership model rather than “leadership as usual”. Contemplating conduct risk offers a transitional model that would potentially avoid many of the crises that have befallen the financial services industry.
The new paradigm of “a risk culture approach” describes the values, beliefs, knowledge, attitudes, and understanding of risk shared by boards and organisational members. It concerns both financial and non-financial risks. The exposure of conduct risks in the financial sectors led to many of the customer sufferings that has so shocked the public.
The Royal Commission into Banking and Finance has presented institutional leaders with a golden opportunity to breathe life into their existing value statements and codes of conduct. Rather than seeing them as legal requirements, we need to take a new approach to build organisational integrity and workplace culture, one that begins from a mental model that “thinks human first” and sees employees as consumers too.
Thinking human first would encourage business to develop a very different roadmap to success as well as risk management. Move beyond the current crop of “heat maps” that seek to explain systems, not people, and instead explore the human dynamics shaping the – individual and group “mindsets”, resentments, misunderstandings, contextual pressures, interpersonal rivalry, perverse incentives and role modelling, destructive communications, departmental politics and a host of other social and psychological influences that together shape human behaviour in the workplace. It’s complex, it can be done, and, it requires new “mental models” such as those emerging in new start-ups.
This significantly younger generation of business leaders begin from a different place and a very different cultural story unfolds. Here, leaders purposely design culture to ensure employees flourish. Establishing the bigger purpose from the outset means everyone becomes a risk manager because they want to contribute to that bigger story of making a difference and delivering positive impacts.
Boards, too, need to change their mental model of the skills needed around the table. Who can help them to better understand the human dynamics driving the direction of their organisations? What new sciences do they need to understand to better lead the organisations they are charged with shaping? The Royal Commission has vividly demonstrated that giving priority to shareholder interests can lead to conduct risk, customer angst, social media outrage, and brand disintegration; it’s time to at least contemplate a new governance model.
So, let’s hit the pause button. Let’s take this opportunity to step up and think about how organisational members are going to be together before moving on to what will be the output of their collective efforts. Beyond that, let’s think about how the world has changed and why Boards also need to change. We need new talent to build the social infrastructure that enables an enterprise to flourish; big picture thinkers who deal in the dynamics of continuous change and its relationship to organisational vitality. As Einstein once famously said, “We can’t solve problems by using the same kind of thinking we used when we created them.”
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