Changing the culture of a business can be a long and tricky process, and the go-to method for most organisations is bringing in a string of restrictions and formal processes. However, one expert says that although having these in place is important, you need to get to the root cause of poor behaviour before your culture can change – and that means gaining an insight into human behaviour.
Elizabeth Arzadon, managing director of Kiel Advisory Group and risk culture expert spoke at the recent ICNZ conference, where she highlighted her experience working with companies which needed to quickly turn their culture around.
She says one of her most memorable experiences was working as a consultant at one of the UK’s major banks, where she had to set up an audit method to monitor culture following a series of misconduct incidents.
“The bank took very extreme steps to change their culture, and did a very successful job,” Arzadon said. “They had this idea that one person called the ‘triangle of cheating.’”
“The ‘triangle of cheating’ is the theory that everybody in the world cheats, and that the only way to stop people from cheating is to do three things,” she explained.
“These are to eliminate all reward for cheating, and if anyone is silly enough to try to cheat, you have to punish them severely. The third is to ensure that the probability of being caught if you do the wrong thing is 100%.”
Arzadon said that a year into this regime, misconduct had all but been eliminated – nobody dared to breathe, let alone do something that may be considered misconduct. However, this naturally brought its own consequences to the business.
“The mantra of business is that you can’t make a reward without taking some risk, and this was a business that was taking no risks,” Arzadon said. “It was very successful in one way, but also had ramifications.”
After finishing her time in the UK, Arzadon worked with APRA to develop its approach to evaluating risk culture in Australian banks, pension funds and insurers. She says that ultimately, a formal approach to eliminating misconduct will only take a company so far.
“Expecting to control behaviour through formal systems is a mistake that we still make,” she said.
“Ask yourself, how much of your time and resources should you invest into the formal frameworks, policies, systems and compliance departments? And how much should you invest into the people who can help you understand human behaviour?
“If we label all cultural issues as arrogance and greed and complacency, we are not really understanding what’s driving that behaviour. We are just making it the problem of other people.”