Importance of culture in organisations highlighted in FSA review
March 30, 2009
How much does the culture of an organisation affect its success or failure? A review of global banking regulation by Lord Turner; the chairman of the Financial Services Authority (FSA) has highlighted that organisational culture and behaviours have a very big impact on the way a company operates.
The report has looked at many different areas of why banks across the world have collapsed or fallen into crisis; and also reviewed whether high salaries and huge bonuses, which have been the subject of high profile controversy in the media, can be to blame for the excessive risk taking that led to the credit crunch and subsequent recession. It was found that the remuneration practices that have been so heavily criticised could only be blamed for a small part of the problems that have occurred due to the way banks and other financial institutions have been run. According to the CIPD (in People Management Magazine):
“Many top executives of the banks that suffered huge losses during the financial crisis … were large shareholders in their firms – voluntarily and through the pay policies”
This shows that trying to stop similar risk taking occurring in future by linking reward to performance more clearly will not work on its own, as it did not stop it this time. The FSA review makes it clear that the culture of risk taking – and the behaviours that arise from this – were a major factor in the demise of the financial sector, and recommends that in the future HR has a big job in moulding the culture of these organisations to avoid a repeat of such failures.
The culture of an organisation is set and determined by the very top level management – and this is where HR should focus when looking to influence and develop organisational culture and behaviours. As the FSA review highlighted – sometimes HR may have to become unpopular by telling management things that are difficult to hear, as well as becoming more intrusive in departmental activities to ensure the appropriate culture is being developed. This is all part of the job, but it isn’t an easy part of working in HR, and is something many professionals struggle with – especially in organisations where HR does not have a formal role or recognition at senior or board level; however this is something HR must overcome, especially when the right culture can be the difference between the success or failure of a business.
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