Will the banks really change?

The Hayne Royal Commission Report recommends, among other things, that regulators, banks, superannuation and financial services entities make organisational changes to reduce the risks of misconduct and unethical behaviour. Specific recommendations include ‘building cultures that reduce the risk of misconduct’ and changes to remuneration practices to focus more on behaviours and not just results.

It is critical that financial services organisations understand the nature of unethical behaviour and misconduct, and the key drivers of such behaviour.

A failure to do this will result in wasted time and resources on interventions and ‘best practices’ that are ineffectual and, ultimately, change nothing.  

There are so many factors and complex socio-psychological processes that can drive unethical behaviour and cause people to morally disengage in decision-making. How do we know which ones matter the most?

It pays to look at the organisational science to answer this question, and this is all part of taking an evidence-based approach. Along with international collaborators from the Center for Evidence-Based Management and the Chartered Institute of Personnel and Development, both world authorities in their fields, I have systematically synthesised more than 600 studies on unethical behaviour in the workplace to identify the factors that have the greatest effects.

Many financial services organisations manage unethical behaviours by reference to a ‘risk culture’. The problem with a ‘risk culture’ framework is there is no consistent definition of what it is.

I could not find any consistent and strong scientific evidence supporting the premise that having the right ‘risk culture’ reduces risk of misconduct and unethical behaviour. Yet, many banks continue to invest money in frameworks, measures and tools to manage ‘risk culture’.Based on the best available evidence, I urge banks to rethink this approach and ask whether there is trustworthy science behind what they are doing.