Weekend Reading: Culture Gaining C-Suite Attention

By: Stephen J. Scott , Founder & CEO of Starling

This piece first appeared in Starling Insights' newsletter on February 2nd, 2024. If you are interested in receiving our thrice weekly newsletter, sign up here.

If one of the most important investors in the world believes that studying culture is essential to improving performance, then perhaps we should all take note.?

Better known as "the oil fund,"? Norges Bank Investment Management (NBIM) is, by many estimates, the single largest investor in the world, owning some 1.5% of every listed company on the planet. Yesterday, CEO Nicolai Tangen ?posted to LinkedIn?a study prepared by?an anthropologist?whom he had hired to examine NBIM's culture.?Why would so singularly important a global investor elect to conduct such a study? Tangen explains: "The thinking was: if it's good, then it is good. If it's bad, then it is good, because then we know what to improve!"

In an interview to feature in our 2024?Compendium,?I'll be asking Mr. Tangen to share how he arrived at his management beliefs regarding culture, how they shape his own performance, that of the organization he oversees, and how this may further shape expectations of management among the fund's vast portfolio. If you'd care to see that when released later this year, please let us know.

Meanwhile, those eager to explore related ideas sooner would do well to start by listening to this terrific?podcast, produced by our friends at the Association of Certified Chartered Accountants ( ACCA ), an active Starling Insights partner and contributor.?

Published last week, discussants include Ted MacDonald of the Financial Markets Standards Board (FMSB) — another of our terrific partner organizations — and Olivia Richards , with consultancy Oliver Wyman . The two reflect on their 2023?report, "Conduct & Culture Management Information (MI): Boundaries of Current Practice,” which I highly recommend as a good weekend read.

The FMSB and Oliver Wyman canvassed some 25 financial institutions with a view to learning how they viewed culture, and what they sought to capture in the way of relevant management intelligence to shape operations.?

“What we were seeing is that firms are starting to progress along this curve from verifying control effectiveness to more about understanding cultural attributes,” Olivia notes. "I think the real focus now is on the need for improvement in data and analytics capabilities.” And despite a tendency to focus on misconduct issues, Ted observes that "it's increasingly appreciated that culture gives one a competitive advantage and [that] this is absolutely essential.”

The FMSB/Oliver Wyman study finds that firms progress through developmental stages in their appreciation of culture as a key management interest:

• Those at "Stage 1" are usually responding to harm after the fact, relying on existing data and focused almost entirely on breaches of expected conduct standards. Data is typically captured on spreadsheets, learnings are siloed, and there are few if any linkages between relevant inquiry and human capital management activities like training and career progression.
• Firms that have progressed to “Stage 2” are more purpose-driven and outcomes-focused, supplementing internal data sources with external data of relevance, exploring learnings gleaned through “managerial feedback loops," and sharing findings consistently, firm-wide. Some key performance and risk metrics have been identified and efforts at achieving greater insights through advanced analytics have been made.
• Among those operating at “Stage 3” we find a fully-embedded and action-oriented emphasis on culture, with advanced analytics in place to support a well-informed understanding of the conduct it promotes. Insights derived through these activities drive recruitment and staff development programs, while informing proactive risk governance measures.

"It has become evident that corporate health and competitiveness is dependent on management’s ability to assess and positively impact specific behaviours and address organisational culture in a way that supports achieving good outcomes,” the Conduct & Culture MI report concludes.

Regulators appreciate this and are attending to culture with ever greater intensity — particularly given the role that poor?culture is believed to have played in contributing to the?collapse of Credit Suisse last year. "Firms might reasonably expect the wider community of stakeholders to also show continuing interest” in how they address culture, as presenting both challenges and opportunities. NBIM’s Mr. Tangen is clearly to be counted among them.

“Risk culture is really of the highest importance and needs to be part of management attention,” Olivia adds, "to really understand how your people are prioritizing their decision-making to promote good business and to safeguard the bank at the same time.”?

Stay tuned for more! Later this month, the ACCA will be releasing a new report, “Risk Cultures and Banking: Where Next?” And, with our partners at the Chartered Banker Institute, next week Starling Insights will co-host a?webcast discussion with FMSB CEO Myles McGuinness and? Martin Moloney , Secretary General of the International Organization of Securities Commissions - IOSCO . Don’t miss "How are Standard Setting Bodies changing Banking for good?,” on February 7th.

And if you’re interested in learning more about our Partner Program, please get in touch!