Banks are facing structural changes, worried of reputational damage or bankruptcy. What is the right strategy enabling them to survive in a harsh business environment?

By Alexandre Buga, Partner, Financial Services Audit, Stephan Welti, Head Regulatory, Compliance & Legal practice, Sébastien Macaire, Senior Manager, Financial Services Audit, and Chouaa Halabi, Manager, Financial Services Audit, Deloitte.

Today, a strong corporate culture - based on the right employee values - should prevent any reputational damage and secure ethical business. Core values, such as integrity, ethics and compliance should affect an entire company and go beyond mere intra-departmental application.

The Finma 2016 Annual Report states that Switzerland, as the world’s leading private wealth management hub, must protect its financial system from misuse. Also Finma Chief Executive Officer Mark Branson, has highlighted that «a culture in which bank employees feel personally committed to combatting money laundering» is essential (FINMA Annual Media Conference 2016).

Latest Requirements

A Finma circular letter published in November 2016 re-defines the regulatory requirements of corporate governance, risk management and the internal internal control system for banks in Switzerland.

The letter stipulates a re-definition of the role of the board, with an emphasis on its composition, as well as board members’ professional experience and expertise. Further, a new the risk tolerance of a bank should be assessed through quantitative and qualitative considerations of a risk governance framework. Finally, the banking body (e.g. the board and the chairman) should focus on defining and communicating the principles of the business corporate structure.

Swiss and Foreign Corporate Culture

The Swiss regulatory framework for banks formally integrates corporate culture as part of the governing body’s responsibility. But this emphasis on culture is not only specific to Swiss regulators.

It can also be observed in European regulators, such as the European Banking Authority (EBA), which gives its board the responsibility of overseeing risk and corporate culture. Other examples are the FCA and the U.K. Senior Manager Regime (SMR), which have increased resources for their «most significant work-streams» on culture.

«How can we oversee corporate culture in a practical and pragmatic way?»

The question we hear most frequently from Chairmen and Chief Executives is «how can we oversee corporate culture in a practical and pragmatic way?» Here are some achievable steps that board members can take to embed a well-functioning corporate culture in business activities:

  • Bring corporate culture onto the agenda
    Board members must recognise that a healthy corporate culture does not only serve to protect the corporate image, but can be a valuable asset and a competitive advantage for the company. In fact, it will help drive differentiation and attractiveness for clients and high-potential job hunters who care about the bank’s reputation and core values.
  • Successfully lead corporate governance
    Good corporate governance and accountability should be led by example at a top management level. Chairmen and CEOs need to be able to demonstrate that they are developing the firm’s culture through the governing body and oversee the adoption of culture in day-to-day management. In many organizations an identified executive - such as the HR Director - supports both the Chairman and CEO in corporate culture related matters.
  • Assess and enhance existing activities
    Management boards should look to leverage existing management information (MI) that provides insight into the organization’s culture. With the vast amount of information, the challenge is to effectively filter data for the board. Chairmen and CEOs increasingly demand explicit MI and whistleblowing within the organisation to promote an open culture where employee concerns are raised to higher instances.

The ultimate questions for a Board revolve around the evaluation of the corporate culture:

  • What is the ROI of your culture?
  • How does your corporate culture impact your brand value?
  • To which extent can reputational damage affect your brand value?

To build and maintain a healthy corporate culture, the board should be the driving force behind embedding core organizational values. Particularly relevant are employee risk awareness, correct information management and the nurturing of successful culture-developing activities. With corporate governance properly applied, companies will be better shielded against reputational meltdowns in the years to come.