What's in the RC Final Report? Four words we hear and the one we don't

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Like many people who work in both banking and law, I watched each round of hearings with interest and read the interim report carefully. There were times when my family referred to the work of the commission as my personal Netflix and I became engrossed in the experiences of customers by several of the banks that I have consulted to in the last fifteen years.

One day as I listened to the evidence, it stopped being just riveting entertainment for nerds. It started to make me both angry and curious. Had the work that I had done to improve the performance of the banks in my own small way contributed to the poor outcomes for customers? It was becoming clear that four words were going to be important to the findings - culture, remuneration, risk and governance. I started to listen more carefully, I started to reflect both on my experiences in those banking clients and my research interest into professionals and the HR systems that influence their behaviour. Then I realised a word was missing - climate.

Climate means something very unique and specific to Human Resources. While jokes are both common and well placed about most of HR, there are a small number of us who like to think we know what we are doing. We have formal qualifications in HR, we hold registration with an industry body (CIPD), we complete our CPD like other emerging professions and we use evidence based research to inform our advice to business. We also passed exams to check we understand the difference between culture and climate, we write papers on the subtle and important ways governance, risk and remuneration are connected to performance through leadership and team dynamics.

A pattern of basic assumptions - invented, discovered, or developed by a given group as it learns to cope with its problems of external adaptation and internal integration that has worked well enough…to be taught to new members as the correct way to perceive, think and feel in relation to those problems (Shein, 1985,9)

Organisational culture is an abstract concept. It became part of management vocabulary in the 1980’s - yes, the same time as leg warmers, mullet haircuts and In Search of Excellence by Peters & Waterman (1982). It describes one part of the system that creates performance and competitive advantage. First defined by Shein in 1985, it guides problem solving and decision making for the organisation’s advantage. At the same time every personnel department was renamed to Human Resources and Dilbert started to get brilliant material to work with. This intangible concept, introduced at the same time HR was emerging and organisations were looking for new ways to create performance is still misunderstood by many. HR has no barriers to entry so how culture works is not always learnt in formal training. Sometimes it is learnt on the job, sometimes experienced during a “cultural change project” and sometimes not learnt at all. Now is the time for people working in HR to contribute to the solution with clarity about terms and their definitions, give evidence based advice and improve our credibility at the same time. Close your own knowledge gaps to make sure the advice you give to the business is correct.

The word we haven’t heard is climate. With each case study heard by the Commission, the difference between the organisational culture and the organisational climate started to become important to understand what had happened. Climate is defined as shared feelings and attitude of the people employed in an organisation. It’s about the individual and how they feel doing their job, working in their team and interacting with their customers. It interacts with personality and professional identity to produce both good and poor decision making. How a person feels doing their job is complex when professionals are involved - they have responsibilities to society and expectations of ethical behaviour beyond the normal employee. It becomes more complex when you consider professions being formed such as financial planners and established professions changing as we are seeing with the large increase in in-house legal professionals working in legal, risk, compliance and governance roles. A climate where a person feels comfortable to raise and objection is very different to a climate of cover that up or deciding that it’s someone else’s responsibility to fix. Both may have a culture described as balancing the needs of the customer with the needs of the organisation but I know which climate is more likely to result in an individual breaking the law while others look on. HR research also tells us which personalities are most likely to do bad things in one climate compared with another and the research on professional identity tells us how a professional climate is created and sustained in traditional professions. What we are working out is how this works in groups that are being professionalised. The commission evidence has shown us what doesn’t work. Now we need to find a better way - informed by research not guess work.

In this series of blogs published in the first week of each month during 2019, I’m going to focus on how HR can make a genuine contribution to implementing the changes recommended by final report. There will be much commentary on what the banks should do, what the leaders inside those organisations should do and how the culture of banking needs to change. HR teams can start by being clear on the difference between culture and climate. One is a group mechanism, the other is individual. One can be measured directly, the other one can’t. Each works differently and is changed in different ways. Each can be reviewed and monitored by regulators if they know what to look for. There won’t only be hard learning by leadership teams and those in customer facing roles. HR needs to think critically about how specialist HR knowledge can contribute to the type of banking system Australia needs and we all want to work in.