Profit-to-member super funds need to develop culturally aligned remuneration programs to lure talent from the banks without repeating their retail rivals’ mistakes.
COLUMN | A great deal has been written in recent years about failures of culture within the big banks.
Now, as the big four set about selling down their wealth-management and insurance arms, there is an opportunity for the ‘profit-to-member’ superannuation sector to learn from the banks’ failures.
In response to evidence of a disconnect between the cultural values the banking sector’s senior leadership articulates and real practice, the Australian Prudential Regulation Authority now demands bank boards show how they are systematically measuring culture, much as an airline must closely monitor safety.
Having worked in banking myself, I can attest that measuring culture in a climate focused on short-term performance numbers is a huge challenge.
But as APRA chair Wayne Byres said: “Aspirational statements of organisational culture have been no match for the personal incentives that are created for individuals [and] strengthening culture, like strengthening capital, is critical to long-run stability.”
Incentives and disincentives
The Risk Culture Project, an ongoing Macquarie University study that began in 2014, surveyed 13 business units across three major banks. Professors Elizabeth Sheedy, a former banker, and Barbara Griffin, found bank leaders had been ignorant of their firms’ cultural deficiencies that contributed to bank staff overlooking regulatory breaches.
The researchers found avoidance culture – in which employees believe risk breaches will be ignored or excused – to be a problem across the banking sector. Their findings state that bank leaders have an optimistic view of culture, as they are not told the truth.
Additional research from the same team, based on test labs running various profit and risk scenarios, found profit-based incentive programs influenced the attitudes of staff and increased poor behaviour. The researchers also found that longer industry tenure correlated with a reduction in poor behaviour.
The Risk Culture Project concluded: “It is difficult to have high rates of risk compliance in the presence of profit-based payments, as these signal the true priorities of the organisation, and staff modify their behaviour accordingly.”
In contrast, well-designed rewards programs can focus employees on customer service, retention, innovation and other longer-term outcomes, over short-term sales revenue.
Profit-to-member funds should focus on building their own strongly differentiated culture that rewards talent for superior performance and quality risk management.
Rewards don’t have to be only individual or only financial, but out-performance does need to be recognised in organisations that wish to be competitive in financial services. After all, super funds pay their external fund managers performance fees so why shouldn’t they reward their own star performers?
Like it or not, incentives are part of the financial services landscape, so we need to make them work. This requires well-structured roles and strong performance management with clear key performance indicators, along with incentives. All of these components must be aligned with the fund’s culture and expected behaviours.
By grappling with these issues, profit-for-member super funds can capitalise on the banking sector’s cultural failures – as some funds are already doing.
Our executive search and advisory practice has significant experience placing commercial leaders into the profit-for-members sector. Typical examples of feedback from these former bank executives, once in their new roles, include, “Great to have a laser focus on the member” and “Why did it take me so long?”
But without the right culture and incentives, employee engagement falls and organisations can say goodbye to our best talent.
Being member-centric and having a friendly work environment is not enough.
Harvard Business Review regular contributor John Coleman argues that great culture can account for a 20 per cent to 30 per cent differential in corporate performance.
Coleman identifies six components to culture: vision, narrative, place, values, practices, and people.
Great culture will feed team engagement and attract the best executives with the right attitudes to risk and commercial skills to drive profit-for-member funds in our hyper-competitive and highly regulated world.
Those funds that embrace a culture of being fast to fail, learn, adapt, and go again will win out.
Michael Swinsburg is managing partner, Asia-Pacific, at Alexander Hughes Executive Search.