UK: can culture be regulated?

The chief executive of the Financial Services Authority, Hector Sants, delivered a speech yesterday - see here - titled Can culture be regulated? Mr Sants argued that regulators should recognise culture as a legitimate area of intervention and stated that the FSA had the means to intervene through, for example, influencing the composition of management and incentives for good behaviour as well as requiring high standards of effective risk-management. With regard to boards, Mr Sants observed:

Boards have a greater role to play. Historically, there has been insufficient discussion and challenge in this area. Boards need to show leadership. Boards should ensure that their firms have the right culture that permeates throughout the organisation. A culture, however, should not be confused with ‘atmosphere’. Of course, a dealing room will have a different atmosphere to that of a retail branch. However, both can have the same culture and ascribe to the same ethical values. To this end, I would particularly encourage boards to have a structured process for reviewing their firm’s culture, identifying its drivers, and the behaviours and outcomes it delivers. This process could be allied to reviewing employee engagement, customer satisfaction and brand perception, as these are all interlinked. If we are to really bring about a change in culture in our institutions, this needs to be driven by their boards".