I was recently asked by corporate finance publication Acquisition International to contribute my thoughts on the topics of diversity and culture, and the impact that both can have upon the Finance Sector.
As I discuss in the article, diversity matters! It fundamentally impacts the performance of organisations, but to be effective interventions must be systemic. What does that mean – creating a culture of diversity and inclusion where employees at all levels are consistently being sent a message that diversity and inclusion matter. No one intervention is ever enough to say ‘diversity matters’– it is a combination of what you say over time, what people see you do over time and the many decisions that you make in those moments where there are finite choices.
As I say in the article ‘There is a growing cycle of expectation around diversity. As organisations and individuals better understand what good diversity looks like, the pressure to get it right will increase. It’s a positive trend. It brings an ever brighter spotlight on the issue and there is not an issue in history that has not benefitted from the debate and focus light can bring.’
The Culture of Diversity in the workplace
An organisation’s culture is unique and as such, its cultural transformation journey needs to be specifically tailored. Off the peg solutions rarely address the fundamental cultural drivers of an organisation. It is the fit and flow of a bespoke solution that enables us to work with clients at the deepest levels of behaviour and belief which can build a culture of choice not a culture of chance.
Diversity is a great example of where organisations need to go beyond simply recruiting different people, or doing different things, to where they genuinely foster a different belief system to drive different behaviours.
Will diversity improve the state of your business? Categorically yes, but only if you get it right.
The value of diversity
Let’s consider gender diversity. There are now many significant studies that highlight the very real bottom line benefits resulting from having female board directors. A study of the Fortune 500 by Catalyst found that companies with the highest percentile of women on their boards outperformed those in the lowest percentile by 42% higher return on sales and 53% higher return on equity. This positive impact is echoed in reports from Grant Thornton, McKinsey, Reuters, Leeds University and others. There is strong evidence proving the material gains available due to female board representation. What is less clear is what aspect of gender diversity is having the positive impact.
At a biological level there is a growing body of evidence about the role of the human endocrine system in decision-making. One of the latest studies, published in Nature Journal last year looked at the role of cortisol and testosterone and found that elevated levels may compel traders to make riskier investments. The research undertaken by Imperial College London found that high levels of cortisol motivated risktaking, while increases in testosterone level made participants more confident to invest in risky rather than safe assets. In short, a more male dominant environment is likely to lead to riskier decision making.
Hormones may also affect group dynamics and team work. Researchers at UCL studied the impact of elevated testosterone on women. In the group receiving small testosterone doses, researchers found participants began to act more arrogantly, favouring their own view and dominating debate. No such changes were recorded in the placebo group. On the other side, research has found groups are more co-operative and work better together when exposed to higher levels of oxytocin, a predominantly female hormone.
But there is more than biology at play
Diversity brings a difference in experience and perspective that can deliver positive results. Diversity can reduce the impact of 'groupthink' and increase the levels of healthy debate and challenge in an organisation. As such, it enhances decision-making.
As diverse as your employee base is, you can be fairly sure that your customer base will be more so. Increasing the range of profiles within your organisation to better reflect the range of profiles of your customers can increase customer understanding leading to improved customer loyalty.
Being open to the best person for the job means you can access the best talent for your business, regardless of gender or ethnicity. One would think that can only be of benefit for your business, but there are challenges.
If you employ a more diverse workforce but fail to adapt and amend the behaviours, symbols and systems within the business to let them thrive, you will create discord and harm. At Walking the Talk we have a deep understanding of the need to align what you say with what you actually do. It is such an important principle for successful cultures that we named ourselves after it.
Do you take a top down or bottom up approach to diversity?
The solution is not an either or, you need both. The art is to be effective with your timing.
In our 25 years of experience we have found that the starting point is nearly always working with the Executive and leadership of an organisation. People get an understanding of their culture from what they hear people say, what they see people do and how the business is set up to get things done. The leadership control across these elements is such that without adaptation and change at this level any culture transformation is often stymied.
Generally, it is only once the leaders are aligned and committed to the new cultural principles that you can really begin to build an effective force for change throughout the organisation to reach your cultural tipping point. The principle behind this is that committed leadership will provide the time, financial resources and personal support behind something that they believe in. Trust is built across the business because of the alignment of walk and talk. Champions of diversity then have the opportunity to step forward and thrive in a supportive environment.
This is when the focus can shift to more bottom-up activities. Often the easiest step to take is to find those members of your organisation that already epitomise and role model the behaviours that are being sought. Connecting with cultural advocates and giving them the tools and skills to spread their influence is one of the most powerful ways to drive organisation-wide culture transformation. Because the drive is from within the business the change feels authentic and organic, not consultant led.
A bottom-up drive does three things:
- By creating a coalition of individuals throughout the organisation with a similar mindset it starts to make a new norm more visible, tangible and do-able in the organisation.
- It becomes more difficult for leaders to walk away from the change that they have started; it applies an implicit pressure, holding them to account.
- Finally, the impact of peer behaviour on others should not be underestimated, especially when a peer is part of a new movement. Peer to peer story-telling has the potential to send strong messages that the norms and standards of the organisation are shifting.
Are culture changes in the Finance Sector a necessity?
So far we’ve mainly been focusing on diversity. Culture is a wider, more complex concept. We need to have clarity about what we mean by diversity and what we mean by culture. Diversity is the make-up of your workforce in terms of physical characteristics and mindsets. Culture is the pattern of behaviours that are encouraged, discouraged and tolerated, by people and systems, over time. You can have an extremely diverse workforce exhibiting an extremely unhealthy and unhelpful culture. Diversity is not, in isolation, a route to a thriving culture.
In terms of diversity the sector can and should do better. In February 2011 just 12.5% of FTSE100 Board positions were occupied by women. By October 2015 this had risen to 26.1% according to the updated Davis report ‘Women on Boards’. You can’t deny a favourable trend, but we should not be complacent. The Empowering Performance report found that whilst women made up 23% of board positions in the finance sector, just 14% were on Executive Committees. If we consider ethnic diversity, Board representation was running at just 2% of directors in the top FTSE150 by the end of 2015. This is not enough and more must be done.
But, diversifying the bums on seats is not sufficient to generate benefit. Organisations have to be prepared to work on their culture. Any business in the financial sector that thinks they don’t really do culture is mistaken. You have a culture whether you manage it or not. Every organisation has patterns of thinking and behaving which are being encouraged, discouraged or tolerated. That is your culture. The question is whether it is a culture that you want and that contributes in a positive way to the business outcomes that you seek.
We would argue that any organisation with a business strategy should have a culture strategy to align behaviours to business deliverables. A recent piece of global research by Duke University found that whilst 90% of CEOs felt that culture was critical to business performance, only 15% said their culture was where it needed to be. Imagine if Duke had found that 90% of CFOs thought financial management was critical but only 15% thought their accounting procedures were suitable? It is an untenable position for accounting, it should be untenable for culture too.
Common culture issues
Whilst each company will take a different journey to transform, we are finding repeating culture themes across the Finance Sector. It can best be summarised as a deficit in two key behaviours.
The first behaviour is the ability to see others’ perspectives. Sounds simple, but there is a humility of mindset not often found in financial services underpinning this. It involves debate, discussion and openness. It directly supports diversity as it allows many voices to be heard. It improves decision making because the individual is encouraged to consider the wider view. How many traders believed that defaults on US mortgages would never go above 8% and stuck to this belief in the face of ever-increasing evidence? To see another perspective you often have to loosen the grip on your own beliefs.
The second is trust. Many organisations are rushing to devise and implement lengthy conduct strategies, partly to meet regulatory requirements but also because tick-boxes and paperwork are being used as a substitute for trust. Underpinning effective trust must be a robust, clear and well communicated risk strategy. The boundaries must be understood and the consequences enforced. This is a harder route than process checks and balances, but we would argue a necessary route if companies want to be the best that they can be.
Interestingly we would expect to see both of these being fostered in a well-performing, diverse workforce.
for 2016 and beyond
We see the trend for ever greater regulation and legislation around accountability, such as the Senior Managers Regime continuing. For many organisations this raises a very real challenge. As people are promoted it is more normal for them to receive finance, strategy, communications, or logistics training than be supported in developing their culture management capability. This is an opportunity for all organisations to invest in building a truly valuable core competency.
We think volatility and adaptability will be strengthening features in the marketplace. Peter Drucker said “Culture eats strategy for breakfast.” We hope that more organisations wake-up to the power of culture as a business management tool as they strive to deliver their business goals. We know that strong culture management capability really does drive adaptability and diversity.
There is a growing cycle of expectation around diversity. As organisations and individuals better understand what good diversity looks like, the pressure to get it right will increase. It’s a positive trend. It brings an ever brighter spotlight on the issue and there is not an issue in history that has not benefitted from the debate and focus light can bring.