ABA Banking Journal - June 2014 - (Page 6)

editor's column BY BILL STREETER Culture as a defense Y "Most people are followers. Which is why it is so critical for a leader to clearly set the tone and, most importantly, THE EXAMPLE" BILL STREETER bstreeter@sbpub.com 6| ABA BANKING JOURNAL | JUNE 2014 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 organization. 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 erode. 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 you say. 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

Chairman's View
Editor's Column
The Economy
Bank Notes
Picture This
Affordable housing pioneer
Pass the Aspirin
Tech Topics
Lines of defense
Top performing community banks
Compliance Clinic
Compliance Inbox
Around the ABA
Legal Issues
First Person

ABA Banking Journal - June 2014

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