The Banking Royal Commission into misconduct: 4 overarching lessons for HR
The Banking Royal Commission has raised many questions. With HR and People leaders playing a vital role in company culture, here’s four overarching questions the sector’s currently grappling with, as it looks to learn lessons from the Royal Commission in Australia.
What’s your company culture driven by?
The Royal Commission into the misconduct in the banking and financial services industry has raised many questions since it was established in December 2017.
The Commissioner, Kenneth Hayne’s, interim report published at the end of September explored many of these, but one of the standout takeaways, unsurprisingly was this: the culture and conduct of the banks was driven by, and reflected in, their remuneration practices and policies.
This is a particularly pertinent issue for HR and People leaders, as creators and custodians of remuneration policies.
However, these policies, and how they drive company culture, isn’t the only question for HR leaders, as they think about some of the implications of the Banking Royal Commission.
Transparency, leadership and handling misconduct are also in the public eye – all areas that HR and People teams play a vital role in.
As a result, we’ve rounded up four key questions for HR and People leaders to think about, as we look to learn lessons from the banking and financial services misconduct in Australia over the last few years.
1. What drives your culture?
It’s not always something written down in an employer handbook, or in a company’s mission statement, but ask most HR teams – or even boards – what drives the company culture, and you can get a sense of what’s important to an organization and its people.
Some may say high-performance. For others, it may be the brand. It could be an organizational goal such as becoming the leading expert or provider in a field, or surpassing a competitor somehow.
It’s also something driven by an organization’s leadership.
In the banking and financial services sector, Commissioner Ken Haynes was clear that it was financial incentives that drove culture. His interim report explains that organizations and individuals were motivated by financial gain, or short-term profit.
The question of how remuneration became such a negative and disproportionately significant driver of employee behaviour is connected to executive and manager communication with colleagues, as well as onboarding and ongoing performance management, according to counsel assisting the commissioner Rowena Orr, QC.
Orr described the widespread malpractice as a “failure of culture” and “failure of education”, which started with the executive and was actively reinforced throughout hierarchy through remuneration practices.
The takeaway for HR and People leaders? Ask yourself what really drives your people. Even better – ask your employees.
Design ways of working and experiences to reflect this. It might not be money, compensation and financial incentives that drive your workforce. If it is – what behaviour does it incentivise?
2. How do you recognise and reward employees?
66% of employees we spoke to as part of our research said that being valued and recognised for the work they did was vital.
How do you reward your employees? How do you incentivize them? Do the rewards you design to incentivize your employees have the desired impact that you intend?
Hayne’s interim report is clear that financial reward drove a lot of the behaviour that the Royal Commission is investigating.
We’ve blogged before about how to use recognition and reward to incentivise employee behaviour. Rewarding with relevance and linking it to company values are both vital.
It doesn’t mean simply cutting financial rewards for employees. Instead, it’s understanding what employees really want – and what your business objectives are – and appropriately linking rewards to this
In fact, recognition programs tied to organizational values outperform other programs on every level, according to the annual SHRM employee recognition survey.
The Banking Royal Commission has brought the issue of employee recognition to the forefront. HR and People leaders can play an important role in using this as a catalyst to understand and re-design ways to recognise and rewards employees appropriately and proportionally.
3. How do you promote a culture of transparency?
At the heart of the issue of misconduct in the sector, is transparency – or, the lack of it.
The simple fact of the matter is banks weren’t transparent with customers. The corporate regulator found financial advisors had failed to comply with the best interests of customers in a staggering 75% of advice files reviewed.
Had banking processes, fees, and contracts been more transparent, misconduct would not have been so prolific to the extent or for the length of time it was.
For leaders and HR teams, the question is: how do you promote a culture of transparency?
Sometimes, it can come down to just the small things. Even if there’s information you can’t pass on to your employees, they’ll appreciate your honesty that you can’t divulge details, but will keep them updated as to when you can.
Or, it can mean leaders setting a clear example. Think about your organization and ways of working within it: are things done transparently? Or, do employees feel they’re not always getting the answers or information that they need?
Hayne’s interim report was clear that things need to change in the banking and financial services sector.
4. What risk management practices do you have in place to prevent misconduct?
The fourth question or takeaway for HR leaders from the Banking Royal Commission is one of the most obvious: what do you have in place to prevent misconduct? How do you address misconduct – are there clear company policies and procedures in place?
This can be explored on two levels: at a sector level, and at a company level.
Hayne’s interim report suggests that this question at a sector level will be addressed in detail in the final report, looking at approaches in place across the banking and financial services sectors overall.
At a company level, every HR and People team knows the role misconduct policies have in an organization, and how they’re used to uphold standards across an organization.
However, is now the time to re-visit them in light of the Commission?
When were your procedures updated? Are they still relevant – or are there parts that need updating? How watertight are they, and have they been tested?
Although it’s always good practice to regularly review these, the Royal Commission is an opportune and timely moment to do this – and provides a clear and compelling reason for employees and leaders across the organization to understand their importance and relevance.
Conclusion: It comes down to experiences
At the core of the discussion about the sector’s misconduct has been the notion of bad culture.
There’s no doubt that things need to change – and the report’s overall findings will address some of the ways the sector as a whole can do this in more detail.
However, one thing HR and People leaders can think about now is: what does culture really mean for employees? For us, we think it comes down to experiences.
Culture can be an intangible thing; but the experiences a company creates for its people plays a vital role in setting the tone of the business and demonstrating an organization’s values.
What tone do you set in your organization?