ABA Banking Journal - June 2014 - (Page 6)
BY BILL STREETER
Culture as a defense
"Most people are followers.
Which is why it is so critical for
a leader to clearly set the tone
and, most importantly,
ABA BANKING JOURNAL
ou won't find the word "culture" in
the cover story on "lines of defense."
The article covers OCC's heightened
regulatory focus on risk management and
compliance and especially its three lines
of defense: the front line, risk management, and internal audit. The overlay to all
three is governance, which comes closest
to the concept of "corporate culture."
That phrase conjures up a raft of behaviors and practices and there are numerous
articles, books, and courses dedicated to
exploring the subject.
I am no expert on corporate culture,
but I was struck by its relevance to risk
management. As a long-time observer of
the banking scene who has had countless
conversations with bankers, I'm convinced
that an organization's culture reflects its
leadership. And that's true no matter if the
organization is a 23-employee community
bank or a 200,000-employee global bank.
A simple example: If a bank's CEO
emphasizes careful control of costs, and is
thrifty in his own spending-a key point-
that message will spread throughout the
To become ingrained, the message
must of course be enforced so that people
realize that they can't willfully ignore the
company's expense culture. Eventually the
company will become known for being
thrifty, and for a time that culture will be
self-perpetuating. When that CEO leaves,
however, and is replaced by another who
says the same things but is careless with
expenses, the culture of cost control will
This is not to say individuals cannot be
thrifty (or whatever) of their own volition,
but overall, most people are followers.
This is why it is so critical for a leader to
clearly set the tone and, most importantly,
the example of what they wish people
working for them to do. You can fool them
for a while. But sooner or later people
catch on that you don't really mean what
Ten years ago, when I interviewed
former Federal Reserve Board Governor
Elizabeth Duke on the eve of her becoming ABA chairman, she made a great point
about what employees focus on. She said,
"Your employees watch what you do a lot
more than they listen to what you say."
That could be noticing how the branch
manager deals with a difficult customer,
or a delinquent borrower, for example. Or,
from a governance point of view, it could
be noticing the disparity between management's strong words about not tolerating
unethical behavior, and the lack of any
action to rein in employees engaging in
questionable practices. Employees don't
miss a trick in such matters.
There can be "rogue" traders or lenders, of course (not to pick on those two
disciplines), but if a company's culture is
sound, bad actors won't last long. Within
a culture that tolerates fast and loose,
however, the culprits often figure out ways
to beat the controls.
"Employees act like they think you want
them to act," Duke also said, "and that's
based on what they see you doing." Or
not doing in some cases.
So I would suggest that a corporate culture that does not tolerate abuse or excess
is an equally strong line of defense as the
OCC's three defenses, mentioned above.
Such a culture starts with the person at
the top, and flows outward from there.
Table of Contents for the Digital Edition of ABA Banking Journal - June 2014
Affordable housing pioneer
Pass the Aspirin
Lines of defense
Top performing community banks
Around the ABA
ABA Banking Journal - June 2014