Photo: Federal Reserve Bank of New York
On 14 January 2020, New York FED President John Williams discussed his recent panel ‘Working Together: an interdisciplinary approach to organizational issues’ at LSE.
Beaver: What brings you to LSE today?
Williams: I did my MSc here 30 years ago so I always look forward to coming back and visiting the LSE. I have enormous fond memories in my years studying here, so being able to connect with the university again is one goal. The other is that we have this event organized with the banking standards board around culture in the banking system which has been a high priority for me and the Federal Reserve of New York the last couple of years. We are having this event to talk about bringing other fields of science into the conversation around culture and the financial services sector.
How do economists view issues related to culture in the financial services industry?
I think economists- and I’m an economist so I speak for myself and the profession- often think of things relatively narrowly. They think about incentives (to take and manage risk), pay structure, or management standards around activities, and I think those are very important and obviously play a role in the culture of an organization. However, we do know that from behavioral sciences it’s not just about money- and as economist I’m not sure if I’m supposed to say that.
Culture depends on a lot of things that matter to people. It’s really something that affects all of the decisions we make in organizations, not just around risk taking but in terms of diversity and inclusion, giving the best ideas, and willingness to challenge each other. I think economists tend to focus mostly on financial incentives, but there are a lot of other aspects that affect behavior and norms.
When economists learn from experts in other fields, how do they relate to each other?
We had a conference in New York last summer, and we brought in people from the behavioral sciences. First of all, I had a really positive response from the audience; we learnt a lot from talking to people that perhaps we haven’t talked to as much in the past. In terms of connecting dots, it’s understanding that although financial incentives and rational decision making are important, there are other aspects of decision making that relate more to how our brains work and the social aspect of work that maybe we don’t even notice we are doing. Unconscious bias is one example.
Another is how we frame questions or issues changes how you think about them, like the words we use in describing decision making or risk. We have issues of misconduct, and the conversation can instead of it being about right, wrong, or consistency with organizational values, can use language like, “You aren’t team player.” We are human beings, and are influenced heavily in our behaviors and norms by what is around us and the expectation put on us.
What role do you think organizational psychology plays in building that long term corporate culture?
People can often take the culture of an organization for granted. I can use my own example of moving between organisations, and people saying things like, “That’s not how we do things here,” or “This is the way we do things, and we have a longstanding culture of x, y, z.” It’s the people working together who shape the culture. The leadership of the organization and all the people in the organization are creating a culture everyday they work. Instead of thinking about culture as this is the way it’s been, it is incumbent on leaders of the organization and everyone in the organization to shape that and create a culture they want.
You can choose to have a certain culture, but can’t not choose to have a culture- it’s going to be there. By not taking into account behavior sciences that’s a decision already on what kind of culture you have. You have to think about how this affects things: how you communicate expectations, how you talk about various things, how you approach things. A good example of this is diversity and inclusion, where you realize how you behave in any situation affects how the culture is like. A lot of people think of culture as you have a risk culture, diversity and inclusion culture, but I think all of these is one culture that can manifest itself in these different dimensions.
We often talk about having a risk culture around financial risk, and we have policies around that. Actually, the culture you create everyday on everything you do spills back into this risk culture, and how you approach diversity and inclusion. A leader can’t say I want you to follow x, y, z in terms of risk, but then everything else they do shows they have exactly the opposite view on this. You have to be consistent in messaging, thoughtful of how you frame issues, and basically walk the talk. We learn from outside experts that the style of approaching each issue one way and solving that like a tactical problem doesn’t really work; it’s about an organic, holistic culture.
About inclusion, an organization often says we need to find candidates that fit into the culture, and my view is you got to change that conversation to we need to create a culture where people feel they can fit in being themselves, so we fit the people, not people fitting into us. Obviously, we have integrity, but I feel this is about understanding the psychology of consistent messaging.
How do large organizations nowadays become more diverse and inclusive, and how do we measure the progress the industry is making?
Firstly, I think inclusion is really an important aspect. You are not going to get where you want to be on diversity if people come into the organization, from the moment of interviewing or applying, say, “It doesn’t look like a place I’m going to be comfortable or be able to succeed.” The necessary condition is people being able to be themselves. We learn from the other fields how people cover their true identity when coming to the workplace- the vast majority do this. You want to lower those barriers so people can be themselves in the workplace. Creating an environment where people feel like and are able to do the best work in an inclusive way is the foundation. In terms of programs, we have a lot in terms of recruiting and mentoring programs but also in terms of outreach to other colleges and job fairs; having more people from minority backgrounds and being very proactive on the diversity side. We have summer internship programs where we are very focused on bringing more diverse candidates.
A lot of people understandably, and I am one of those people, want to be given opportunities to grow in your jobs. We know we are on the diversity pipeline. One area where we struggle is a lot people say, “I know we have gotten to this place, and I know this organization wants greater diversity, but don’t feel like I can achieve my career goals in the way I want to,” and look for other jobs. We have to foster that environment for everybody where they feel like they are being given those opportunities.
Progress is a big issue, because the expectation of everybody, not just younger people, is that we are more transparent. The New York Federal Reserve has taken greater steps, and other organisations are too, in putting out the data and statistics, not even when they are where we want them to be, because we want to say, “This is where we are, these are our objectives, and this is what we are doing,” to be honest with ourselves. The financial services industry has been falling short on diversity despite a lot of efforts, and part of addressing that is being honest about where we are and where we need to progress.
As someone who has been leading one of the largest organizations within the Federal Reserve System, how has your approach to organizational culture evolved?
Well, again, I am an economist. We are a very professional organization in the Federal Reserve- a lot of lawyers, bank supervision people, analysts, a lot of smart, hardworking, dedicated people- but tend to work very analytically. People like to have rules and policies to cover every situation: “Here is the travel policy, dress code, etc.” Coming into the FED, that was the way things kind of were. You got a policy handbook about everything- a foot deep, a third of a meter deep, 800 kg- but I want everything written down, I want to be clear about everything. One of the things we know about culture, is that it’s really about values and principles. There are policies- integrity, honesty are absolute- but when you deal with the real world, you can’t write down policies that cover every situation. You can’t tell people how to make good ethical decisions by writing down, “Don’t make unethical decisions”; that’s not going to work,
We have to go back to the starting point; what are the foundations of norms and behaviors underlying culture? Sure, you need to know a policy for how to get reimbursed for business trips, but when it comes to most decisions we make about how to best achieve our work, we want people to use their best judgement. Obviously, talk to management, have conversations being open and honest about issues. It’s about moving away from the idea there is a rulebook that tells us how to behave, to one that says we have strong values and principles, and we are a very mission driven organization: let’s apply those to every situation we can. Then, where I’m not sure what I’m supposed to do, have conversations about that. That’s a huge cultural change in the FED. My experience is when you write down a big policy handbook people also start saying, “That’s allowed, that’s not allowed,” and stop owning their own decisions and having accountability, so I think that’s been a big progression.
When we were in San Francisco, we had this huge employee policy handbook. I had never seen it, and all my colleagues complained about it. It had all these policies about dress codes which were decades old and had been adjusted, but everyone was saying that it’s so hard to understand all these policies. At the end of this multi-year process of culture change, the view was we don’t need this huge book. We just need a few basic values, principles, and policies around specific situations like travel and vacations.
We had this event where we symbolically shredded the employee handbook. It was more of a statement of we came a long way, and we don’t need to be looking at page 382, paragraph 7, on note 3 to get what is the right thing to do. This is the journey I think we’re always going to be on. It’s about accountability, owning decisions, and working together to think these things through instead of hoping someone else will answer this question.
The world is always changing, the issues we deal with always change, and the idea you’re going to write down and know the right answer to everything is changing. 50 years ago, everyone in banking wore business attire everyday. No one does that anymore, no one needs to do that anymore. The problem is that people worry: if it doesn’t say wear business attire, how do I know what am I supposed to wear? I say use your judgement. If we use bad judgement, which we had, a manager can say that’s probably not the best decision. It’s a little scary for people, they don’t want to get in trouble, to do the wrong thing. They say, “I want to do the right thing, tell me what to do.” But you’re smart, capable. Once people get over that, it’s I don’t need to put on an uncomfortable business outfit when really what I’m doing is sitting on the computer screen all day.
Where do you think incentive on motivation is coming world for leaders in the finance industry to actually start change?
It’s carrot and sticks. One is clearly the scandals around LIBOR and foreign exchange over the past decade and longer. Those clearly have a big reputational and financial cost to companies and individuals there. Coming from an organizational science side, there’s a realization that strong resilient cultures create strong resilient organizations. So there’s actually almost a double bottom line argument here that is not only you’re going to be ethical and consistent with values, which people want organizations to be, but also that organisations make better decisions in long run, manage risks better in long run, and importantly, attract top-notch talent and keep them. It’s the same as diversity and inclusion.
A lot of business arguments are that we know people want to work in organizations that are ethical and have values and principles that they hold themselves. Similarly, we know having diverse people and diverse backgrounds helps us make better decisions; the science is clear on this. People want that; if I’m running an organization, I want to make sure we attract the best talent. If people look at an organization, and it doesn’t look like it has good values or is not inclusive, we are losing out on the business side. A positive is more resilient, stronger, successful organizations attracting and retaining best talent, and avoiding the really bad outcomes.
Do u think firms are using corporate culture when differentiating themselves when recruiting new talent, or do u think new graduates really pay attention?
Looking at issues like climate change and social issues, clearly people say that I want to work for an organization where their mission or goal is one I share and value. When you have culture it’s just not about financial risk taking. People see, is this an organization where I can do my best work, I feel I am valued, my voice is heard, I feel the decisions are made in a way consistent with the organization’s missions? I think people care about that.
A lot of people say it’s millennials’ thing. It’s not a younger people thing but, it’s an everybody thing. I think the advantage is younger people are speaking up about it, and I feel we all want the same kind of things now. It’s just now maybe more in people’s attention. Organizations are doing this, I think they are. You hear a lot of financial services talk about this. I think there’s a long way to go, and of course you see this same set of issues in the tech industry and in others where bad or rotten cultures had big negative effects on companies, and where stronger cultures help them in the longer term.
How do we deal with employees wanting to express issues but feeling pressured to not speak up?
We talk about having a speak up culture, where people have the space to feel comfortable expressing views that are contrary to conventional wisdom or what the boss thinks. We work hard at that and we have training programs but the root cause is culture. If you walk in to work in the morning, and you think, I know my boss doesn’t want to hear my views when I disagree, then all of our efforts to say let’s have a speak up culture and have big screens saying everyone wants to hear your views is not going work. People are going to say, “I know you say that, but my boss makes it clear that’s not what they want.” Culture is not just having a program, hotline, or video training but getting into the entire management structure of the organization- supervisors, managers- they need to understand they need to have an approach open to different views, and that your career benefits when you bring out different views. We know that’s true; the more views and perspectives we get the better decisions about work we are going to do.
If people come in and say, “I know my boss doesn’t agree with this, but we should at least be aware of the issue and have this discussion,” this helps us be stronger, and everyone benefits. But it is complicated sometimes, when people say they don’t agree with decision making, and express that, and then they (the others) say we heard you, but we are still doing this decision. The people say why wasn’t I heard, and the response is, you were heard but we have to make decisions. But this is getting that healthy process where people feel like you’re supposed to express their own views, even if that’s not what other people think, that’s your job. This is where we’re supposed to get, that’s the culture.
It’s about not am I allowed, am I listened to. The tone at the top matters, being consistent, but it has to be throughout the organization. If you experience everyday ‘just do your job, I don’t want to hear your views’, then you are never going to speak up unless something is really bad.
What is the NY fed doing about issues about corporate culture in financial services?
This initiative started at the bank before I joined, so one of the bank’s higher priorities in terms of engaging with the banking industry, specifically banking culture, my understanding is that it really grew out of the huge failures of culture around misconduct and misbehavior, and really saying the banking and financial system really needs to address these issues because it occurs so many times.
We have been doing a number of things. One, we have this conference where we bring together experts around the world each year, from financial services industry, from the banks, from the academic experts, who bring in how do we think about this, how does this happen, from the regulatory committee, not just federal reserve, from other governments that are working on these issues, and share perspectives, try and move conversations to what can be done, understand deeper roots of some of these issues, and think about what can be done.
In addition to that, we started supporting various programs to help education talk about issues of culture. Graduate programs in schools talk about these issues. We have got examples, of case studies of how we deal with these kinds of ethical or culture issues, so it’s trying to work with the higher educational community on these issues.
And importantly, we do what we do best, which is try to push top leadership on this, and also use this convening power: we get people together that normally are working on their own. Banks work on this in their own way; regulators think about this in their own way. We move the conversation away from the narrow way it has been approached, towards a broader approach to culture, as beyond just misconduct but to the broader culture in the industry.
What advice might you have students considering a career in economics and finance?
My advice today is to figure out ways to learn more about these issues. You’re in school, take courses, or somehow in other ways find out about this. I think that’s actually one of our goals that we talk about in our programs. A lot of business schools, a lot of other programs, they are preparing, obviously they always have a class about ethics, but it’s really getting people to think from the beginning about some of the stuff around psychology and behavioral sciences, and have that be part of your toolkit.
You go to LSE, and you learn all these statistical methods and economics models, so we are tooled up on professional skills we need to do our job. My advice to people is think about it the same way, be tooled up on some of the other issues, especially on the behavioral sciences. So that is part of my toolkit, so when I get into the workplace, I can think about things differently than how I did. For a lot of us, we learnt it along the way, or learnt it late along the way. It would have been great to be more prepared mentally and intellectually.
It also pays dividends for your staff. In my own experience, some of the lessons I have learnt they have struck with me the strongest are when you think about how you behave, how you act everyday, what are the things I say- not the organization-but how do I react to situations. For me, as CEO, everyone sees this and takes a signal from it, you know that, but then it’s thinking about it harder, taking it to the next step.
The first step is realizing everyone watching you, and the second step is thinking these are opportunities, teachable moments. How you react is not just something scary. It is actually a good thing, if you can take some of these ideas and put them into practice. That’s what leadership does, and that’s what we should be doing too. It’s a very powerful thing when you personally understand it, and of course when everyone is doing it, it moves to the culture much more quickly.