Derville Rowland, the Director General of the Irish Central Bank gave a speech recently at the Conference on Culture, Diversity and the Way Forward for Corporate Governance, held at Trinity College in Dublin. In the speech Ms Rowland described how traditional regulation has failed to fully address or mitigate ongoing scandals in the banking industry.
As she points out, the traditional approach of seeking out ‘bad apples’ is flawed. As she points out, studies have shown that approximately 7% of US financial advisors had some form of misconduct on their records, and yet, the distribution of these advisors across the industry is not even. Clearly, some firms are better at managing misconduct so as to root out such behavior. The difference, Ms Rowland points out, is culture.
Given this challenge, it is critically important for bank leadership to set the appropriate tone and for Boards to take full responsibility for establishing the right culture. Firms must establish accountability for misconduct and look beyond general indicators like ‘Net Promoter Scores’ to identify behavioral problems that ultimately lead to misconduct.
Read the full speech: Bad Apples or Bad Barrels? How Effective Culture Mitigates Conduct Risk