Maybe I am missing something, but everyone is jumping on the culture bandwagon. Regulators like to speak about it; prosecutors like to emphasize it – everyone likes to talk about it as a way to encourage corporate leaders to commit to promoting an ethical culture.
Let’s face it – talking about culture is an easy way to demonstrate your commitment to ethics and to compliance with the law. It can sometimes be inspiring. We all are committed to the virtues of a positive culture. We all aspire to advance a culture of ethics.
But as they say, talk is cheap. Conduct is what matters. Words are easy to express but devoting time and resources to promoting and protecting a company’s culture is what counts.
The SEC’s Chairman Jay Clayton added his voice to the culture bandwagon. (here). Chairman Clayton’s speech was interesting for a few reasons.
In the financial industry, we have heard the phrase “culture is not an option.” This was coined by the Financial Conduct Authority in the United Kingdom in a discussion paper. (here). Chairman Clayton added his support to this statement.
Interestingly, Chairman Clayton recognized that a financial institution’s culture is a collection of sub-cultures, and that leaders are not writing on a blank slate – that cultural remnants, or chalk marks, exist in every organization below the radar.
To drive a positive culture, Chairman Clayton noted that a financial institution has to know its culture. He emphasized that changing a culture requires understanding the history of the institution’s culture. If a company understands its culture, then it is able to change the culture by understanding its drivers and motivations.
Chairman Clayton also warned against a culture “disconnect,” which occurs when a regulator has a differing view of a company’s culture than the company’s senior leadership. This tension between viewpoints can make operations difficult for a company because of the regulator’s different perspective and priorities.
A critical driver of a company’s culture, in Chairman Clayton’s view, is the adoption of a clear, concise mission statement. We all agree with that idea because everyone recognizes that a company’s culture has to be defined and keyed to a mission statement. As part of the mission statement, a company can define specific goals and objectives.
Chairman Clayton also defined culture as having a clear mission that fills in the “gaps” to guide conduct when a specific policy or procedure does not address that circumstance. In other words, a company’s culture can guide employees when faced with issues that are not defined in law or regulation. This idea makes perfect sense and reflects the compliance reality – an ethics and compliance program cannot address every possible situation that an employee may encounter.
When addressing potential violations of law and/or culture, Chairman Clayton offered some interesting observations. In response to such a situation, a firm has to ask whether the conduct was a clear breach of the firm’s controls and culture. Additionally, did the firm’s remediation efforts communicate an appropriate message about the firm’s culture and the importance of acting in conformity with the firm’s culture.
