Photo: Federal Reserve Bank of New York
On the 14th January 2020, LSE hosted the panel Working Together: an interdisciplinary approach to organisational culture. The panel consisted of Dame Susan Rice (BSB Chair) and John C. Williams (President of the Federal Reserve Bank of New York), a range of academics from LSE (Grace Lordan, Martin Oehmke, Tom Reader, and Edmund Schuster), and Celia Moore from Imperial.
President Williams set the tone of the panel as one of optimism and genuine determination in changing the culture of the financial services industry. He highlighted the progress firms in the banking and finance industry are making in taking culture increasingly seriously over time. In both good times and bad, it was made clear that culture was a crucial motivation of the norms and behaviors in any organisation. Despite the understanding and developing of healthy cultures being a learning process, Williams noted positive starting points such as using the Banking Standards Board (BSB) survey of organizational culture at the moment to track where you culturally at this moment, in order to progress forward.
Williams spoke about his role in managing and leading two large organisations, and his own experience with changing company culture in the financial sector. Considering the risky, unethical, and criminal scandals that have dogged the financial industry for a long time, tackling a tainted culture is a main priority of both Williams and the Federal Reserve. He recognised the ethical dilemmas junior bankers especially faced in everyday work environments, wherein euphemisms such as “make a judgement call”- implying the junior may be a troublemaker if he or she diverges from the status quo- can obscure unethical or risky behavior.
WIlliams also emphasised the importance of bringing together diverse groups of individuals, including leaders in the financial industry and academics from various disciplines, to find holistic solutions to this problem. Indeed, the speakers today presented a range of diverse viewpoints from their respective fields of expertise.
For his own part, Williams has shifted the culture of the Federal Reserve to one that focuses mainly on compliance to a focus on values, placing a premium on individuals making the right decisions themselves. It is clear that accountability is an essential part in strengthening organisational cultures, and principle based decision making is a strong starting point instead of merely referring to an employee handbook for guidance.
Additionally, speakers like LSE’s Dr. Grace Lordan, Associate Professor of Behavioral Science, spoke on the relevance of behavioral sciences, drawing a distinction between fast thinking, often used by high frequency traders, and slow thinking, requiring a long-term, deliberate process. Companies should keep in mind the culture and environment fostered, since in times of crisis or in a negative, stressful environment, fast thinking may lead to rushed results. However, good corporate cultures don’t necessarily lead to good outcomes- it is important to also allow customers and clients financial agency through nudges, commitment devices, and clearer information as opposed to informational overload.
On the other hand, Edmund Schuster, LSE Associate Professor of Law, spoke about corporate lawyers ignoring insights from behavioral sciences. Corporate lawyers tend to encourage more risk, going in the opposite direction of financial regulation which has mandated a default of lower risk taking.
Celia Moore, Professor of Organisational Behavior, spoke about the human nature of culture, in contrast to companies’ usual focus on policies. Though culture change is slow, it is possible starting at the individual level when people stop conforming to the status quo, even when wrong. Small interventions, such as training “guardians” who encourage people to speak up, can create wider change by instilling a sense of optimism and safety about expressing your own views.
LSE Professor of Finance Martin Oehmke discussed the legacy of financial crises; despite regulation changes, behavioral biases and science are not really incorporated in regulation today. Deciding what to maximise as the regulator may require difficult paternalistic decisions, which result in a focus on incentives. Thus it is important to understand organisational culture to solve the root of the problem.
LSE’s Dr. Tom Reader, Associate Professor in the Department of Psychological and Behavioral Sciences, talked about the culture in organisations with industrial accidents. Similarly as how culture can be a good indication of safety in industrial accidents, culture can be used in finance to determine how much an organisation values productivity over safety, normalization over rule breaking, and the likelihood of a bad practice endemic. When risk taking is normalized, it is likely organisation won’t take culture surveys or participate in research.
Overall, the panel constituted an engaging, meaningful discussion on the driving forces and the process of organisational change in the financial services industry. Importantly, we heard from a wide range of diverse disciplines- economics, finance, behavioral psychology and sciences, law- with an audience from all backgrounds in attendance. Interdisciplinary collaboration is indeed a promising start to solving such a complex issue.