Nurturing a Speak-up Culture

Conduct Unbecoming

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Can firms deliver good consumer outcomes if employees are too scared to speak up?  

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This is the question firms should be actively deliberating as regulators increasingly focus on culture, psychological safety and cognitive diversity, and the role each plays in determining good consumer outcomes.  With the launch of the UK Consumer Duty, even the FCA acknowledges that for many firms meeting the new obligations will ‘require a significant shift in culture and behaviour’ (21 Feb 2023).

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Whilst the Consumer Duty requires firms to have understood the foreseeable harm in their products, and to listen and act on consumer feedback (eg. survey responses, complaints), ultimately, to deliver good consumer outcomes, firms must be delivering products and services from an organisation where there is a high level of trust and an openness to constructive challenge.  This internal feedback, in partnership with – for example - operational controls and effective governance, is critical to alerting firms to issues (be they operational, technical or conduct related) before those issues impact, or cause detriment, to their consumers or the broader market.  

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Recent industry surveys provide some insights into the state of play within financial services firms.  Whilst there are some promising results, they also highlight that more needs to be done on culture, psychological safety and cognitive diversity.

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For example, in its 2022 employee survey, the Financial Services Culture Board (FSCB) highlighted that the proportion of employees who said ‘they felt comfortable challenging a decision made by their manager’ was 81%, and ‘the proportion who felt that people sought and respected different opinions when making decisions’ was 82%.

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However, before we get too complacent, in the same survey, the FSCB emphasised that it continued to see ‘statistically significant differences’ in the answers to speaking up questions when analysed by ethnicity.  Specifically, only ‘72% of Black and 74% of Asian respondents said … they felt comfortable challenging their manager, compared with 84% of White British respondents.’

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Additionally, in its July 2023 report, the Financial Markets Standards Board (FMSB) outlined that whilst all firms surveyed were tracking psychological safety, 45% of firms still treated it as a topic outside of conduct. 

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So, if some employees are scared to speak up, how do firms feel confident that they will discover they have significant issues and where, within their organisations, those issues might lie.  Are firms sailing blindly into an oncoming (potentially regulatory) storm whilst all the metrics, including those on the Board dashboards, are being reported as ‘Green’?  This risk is particularly acute where a firm’s tracking of psychological safety sits outside of conduct.  

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An additional data point to consider is the quarterly whistleblower reporting published by the UK FCA.   Its data from 2022 and 2023 highlights that cases relating to ‘culture’ have been consistently in double figures every month over both years with a high of 39 cases in November 2022.  

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Whilst – quite rightly - we may never know the details of the various cases, the FCA has published a few case study examples on its website that reveal the types of escalations it receives and the actions it takes.  One such case relates to the activities of a Senior Manager at a firm which the whistleblower suspected to be unethical.  The whistleblower highlighted concerns around potentially fraudulent activity but was concerned about how the FCA could make enquiries without putting them at risk.  In this case, the FCA stated that the case manager ‘made enquiries with the firm about their policies initially …. [and] … used this as a way to start conversations with the firm about the culture and Senior Managers at the firm.'

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Good Governance or Game Over?

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“Whether it’s FTX, Boeing, the Post Office scandal, or even Wirecard, they are all governance failure” - Pav Gill 

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In the context of the scandals we’ve seen being played out in the press, it’s clear that the criticality of good corporate governance is increasingly being recognised.  This is, after all, the ‘G’ in ‘ESG’.

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Aligned to this recognition, is a growth in regulatory ‘accountability’ regimes around the world that aim to clarify roles, responsibilities, and importantly, to ensure that ‘reasonable steps’ are being taken to address issues.  How these issues are being escalated and managed, and how the action plans to resolve them are being documented and tracked, is now clearly on the regulators’ radar. 

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Of course, underpinning good governance is the need for a culture that embraces and actively seeks involvement and feedback from across all levels of personnel within the firm.  To ensure their products meet the needs of their target markets, firms should be building teams that are as diverse as the communities they serve.

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So, whether a firm is a start-up, scale-up or more established player, there is a need to ensure that the firm is:

1. Creating an inclusive culture that welcomes and embraces differing perspectives, experiences, and insights,
2. Nurturing cognitive diversity – for example, by ensuring that people with different beliefs, backgrounds and experience are at the table as a business develops and grows, and new strategies are considered and planned out,
3. Fostering a culture where people feel confident and are encouraged to speak up.

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Lastly, but certainly not least, firms should have in place whistleblowing policies, procedures, and a means for anonymous reporting.  

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Notwithstanding the regulatory obligations around whistleblowing, fundamentally, we should ask why firms wouldn’t want to know and act on the concerns of its personnel?  Surely, this plays to the heart of good governance. Not only does good governance support a firm’s growth ambitions, whether that involves new products, new jurisdictions, or a new customer segment, but it also mitigates against the potentially explosive fall-out of a firm that hasn’t assessed, nor planned for, the growth it is experiencing.  

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No firm – nor indeed Board – should want to be at the centre of a media storm, on the backfoot, trying to mitigate reputational damage, whilst addressing consumer detriment. And certainly, no firm should want to be front page news, with explosive evidence and details from a whistleblower revealing all.