Because you want to or because you have to?

There is a question I always ask my financial services clients who are embarking on a programme of cultural change: "In a world where the regulator did not exist, would you still be doing this"?  After a momentary pause, I usually get the response "of course we would!" with leaders citing the need to regain customer trust and the important social role played by financial services.

I believe this answer is only partially right.

Growth remains the core requirement of almost every business and is seen as totally necessary for survival.   Business' need to provide something the market wants at a competitive price, in order to make healthy profits and grow.  The short-term pressures to demonstrate growth, especially for public companies, can be intense.  Anything that stands in the path of that prime objective, such as not fully considering a customer’s needs before selling them a product, is always going to represent some form of dilemma or trade-off for the organisation.

Regulators have tried to reduce this dilemma through stricter regulation.  Knowing they will come under regulatory scrutiny, organisations focus on how to prevent employees doing the "wrong thing" and breaching regulation. 

This focus on prevention comes with profound limitations when it comes to cultural change.  A prevention mindset effectively reduces autonomy by telling people what they can't do.  Autonomy is a key intrinsic motivator and it's loss results in less creativity, less innovation, and less focus on "doing the right thing" in service of the organisations goals.  Paradoxically, this loss in autonomy can actually result in more regulatory breaches as people stop engaging with the overall purpose of the organisation.

There is another way of entering into a programme of cultural change, however.  By adopting a strong promotion mindset organisations actively encourage people to do the right thing. By focusing on doing what is right (and not preventing what is wrong) employees connect more to the overall purpose of the organisation and build a shared identity and set of values.  Regulatory compliance becomes a by-product of the cultural change programme, not the prime objective.

This takes considerable courage but evidence from other industries shows that organisations that undertake cultural change programmes because they want to, and not because they have to, report considerably better performance.  Exceptional results can be achieved when culture is viewed as a source of competitive advantage (in the words of Peter Drucker - culture eats strategy for breakfast).  If changing culture to keep the regulator at bay is the prime focus, that is the best that can ever be achieved.

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