Conduct, culture and Covid-19

(Financial Conduct Authority)

 

Work life has been utterly transformed during the Covid-19 lockdown. Bustling workplaces have been emptied out, replaced by home offices, dining room tables or even bedrooms, and it is increasingly clear many of these changes will be lasting. The ‘new normal’ poses major challenges for corporate culture and conduct… but also some opportunities.

When Boris Johnson announced the UK lockdown in late March, it signalled changes to daily life that few could have anticipated. There must have been many who hoped that restrictions would be for a short time and that, afterwards, things would rapidly return to normal. It now seems evident that the relaxation of the lockdown will be gradual and that ‘normal’ in a post-crisis world may look very different.

For those who can work from home, including many in the financial services industry, there may be no return to the office for a considerable time. Some firms, on finding that their staff can work from home effectively, may look at the cost savings on their office leases and never go back to the old ways of working.

In the first few weeks, many firms will have been focused on the practicalities of getting people set up to work from home whilst simultaneously trying to assess how the pandemic and its economic fallout would affect them financially. This is likely to still be at the front of many minds.

While the systems for dispersed working where possible will now be in place, new ways of working bring new risks and opportunities. A focus on workplace culture may have fallen down the agenda.

In this article, we want to explore some of the ways in which individual behaviour and workplace culture might be affected by the enormous changes in our working lives that the pandemic has brought, and what this might mean for financial services firms.

Individual behaviour

The experience of home workers during the pandemic varies greatly. We are all coping with a loss of freedom. Alongside this, we have been asked to bring work into our home lives like never before. While trying to work some are also looking after and home schooling their children, some experiencing difficult – even abusive – relationships, while those that live alone will have experienced weeks of complete isolation.

Nobody will be experiencing this in the same way. For some, the relief from long commutes and opportunity to improve their work/life balance will be welcome; others might be yearning to regain the time they used on the commute to read a book, listen to a podcast or take a nap in relative peace.

It’s also important to remember that there is a disparity in the impact of home working, and that it better suits those who sit higher on the socioeconomic scale. If you have a large house with a garden and a separate workspace (and you don’t have small children at home), home working is likely to be a very different experience to that of someone who shares a flat with no outdoor space with 3 other people and has had to spend months using their bed as a desk.

Then there are the economic effects to consider. Some sectors are clearly coming under great financial pressure. Their staff will be well aware of the situation and in many firms they will fear redundancy. The word furlough, rarely heard before March, is now regularly the subject of headlines, and may also create fear in those who are just managing to make ends meet on full pay.

The economic impact on those around you also has an effect – some individuals will be under financial stress as their partner’s income dries up or concerned about family members or friends who are struggling financially.

We are all trying to work as best we can while experiencing a global pandemic. And the combination of psychological stress and financial pressure created by the coronavirus brings with it an increased risk of misconduct.

Some misconduct is actually facilitated by the home-working environment. It’s hardly possible, for example, for managers to ensure that staff aren’t colluding inappropriately over WhatsApp. And it’s easy enough to take a picture of privileged data on a screen when there’s nobody sitting next to you to ask what you’re doing.

The Dutch consultancy &samhoud in a recent paper considers the risks of psychological distance, including “out of sight, out of mind” potentially leading to demotivation and increased conduct risk as well as loss of ethical cues from colleagues. People working away from obvious oversight may start to lose a sense of personal accountability.

This increased risk of misconduct is a reason why a focus on creating a healthy workplace culture and driving the right behaviours remains key in the midst of a crisis. But as the nature and experience of the workplace has fundamentally changed, what does this mean for organisational culture?

Culture

Cultures are built by people interacting with each other, by learning norms and accepted behaviours through observation and social cues. If culture is the “way things are done around here”, what happens when there is no “here” anymore?

If firms and their employees do not make efforts to continue cultivating their cultures, and consider what culture means for them in a dispersed environment, it seems likely that corporate cultures will begin to fragment as employees lose informal contact with their colleagues.  Furloughed staff may have lost almost all contact with their employers. Humans are social creatures and they build identities within their social context. Working from home means that work and family become less distinct so family members and, especially as the lockdown eases, friends, become greater influences.  The main contacts that some will have during the working day will be customers and clients. Being closer to customers will in many cases lead to great customer outcomes, but where the relationship is too close, it also carries risks.

If workplace cultures do start to dissolve, this may not be altogether a bad thing. Culture comes from the past, and is moulded and handed down through generations. Not all cultures are healthy – there will be unhealthy aspects of most workplace cultures that have endured and wouldn’t be missed if they were lost.

On the other hand, firms rely on cultures to build a sense of identity and common purpose. While dispersed working may be working relatively well for now and has been hailed as a possibly permanent future way of working, how much of this is down to the fact that the majority of teams that have shifted out of the office will have been working together for some time and know each other fairly well?

Teams have their own identities, they know their purpose, they know the way things are done, even at a distance. But as staff turnover increases, and firms attempt to onboard new joiners virtually, will the system start to break down? Formal processes and objectives cannot entirely substitute for the sense of direction and ethical foundation that a healthy culture can provide.

Managing people

Managing people working from home also presents challenges. Many good managers get a lot of their information from simply being in touch with their people, listening, seeing and picking up on what is going on in the office. In the phrase attributed to management guru Peter Drucker and picked up by Tom Peters and others, it’s “management by walking around”.

In losing this day to day informal contact, managers could run the risk of becoming disconnected from their teams. For many, their manager will be the person they have the most regular contact with while working from home and in this situation, poorly planned communication can make matters worse. For example, a friend of one of the authors, who is on maternity leave, received a call from her firm informing her that, “we’re going to have to make some changes and let people go”.

At the same time, some managers may be wondering what their teams are actually doing at home. You can’t see when someone is spending their time on shopping websites by looking over their shoulder. Or worse, that they may be behaving in a way that leads to an increased risk of misconduct.

The danger here is that managers will resort to making judgements using hard data alone (P&L, sales etc.) without enough context. Combined with the stresses we have outlined above, this could actually drive poor conduct by staff.

However, there is an opportunity for managers to play a positive role. Managers can play a key role in providing motivation, direction and purpose, as well as support for team members who may be struggling, so they should keep in touch with employees regularly, and be aware of the individual issues that they are experiencing. Employees take cues from managers – more so than they do from senior leaders – so keeping these lines of communication open is essential, even where that means making much more deliberate efforts than in the past.

Approaches

There is a lot for leaders to think about here, especially when they are tackling immediate operational and financial issues but we believe that firms that get this right have a chance to foster healthy cultures that will be good for their employees, clients and for the long-term future of their businesses.

The best approach will depend on the nature and culture of each business, but there are some considerations that should apply to any firm. Some of the key points are long-running themes in the FCA’s work on culture. We believe that these are just as important now as ever, maybe even more so.

  • Purpose provides firms with direction – it’s a compass that can help you navigate through the choppy waters of a crisis. A report from Kin&Co discusses how firms can build resilience by investing in purpose and culture. Purpose also motivates – it motivates employees to work for you, customers to choose you to look after their money, and increasingly shareholders to trust you to make a profit –  and research links purpose to business profitability.

    Crises tend to make people reassess what is fundamentally important to them. To make sense of drastic changes or traumatic experience, individuals need a coherent narrative. In fact, narratives are thought to play an important role in the psychology of the self in building one’s sense of personal and cultural identity and supporting the creation and construction of memories. A narrative highlighting solidarity in a time of hardship would allow firms to channel the current situation into a culture of solidarity, providing purpose by linking individual efforts to the overall narrative.

  • Leadership integrity. Harvard leadership researchers have found that crises are most often over-managed and under-led. Leaders need to display honesty, openness and integrity more than ever. It will be critical to build the trust of staff, customers and other stakeholders.
  • Identify your risks and opportunities. The first step is to recognise that the people and conduct risk profile has changed. There isn’t a single template for where the new risks will be – even within one firm, there may be different risks in different parts of the business, so it is worth taking time to work out what those changes are. But there are also potentially positive aspects that can lead to opportunities for better ways of working.
  • Psychological safety. Leaders and teams need to consider how they can build or sustain psychological safety in a virtual environment, so that staff still feel safe to speak up, and will be listened to when they do. Psychological safety is going to be a crucial ingredient to successfully navigating this crisis. As new risks surface and decisions are made at pace, leaders need to be sure their people feel they can challenge a decision if they spot a risk nobody else has noticed, or are able to report a mistake before it has the chance to escalate without being punished. Psychological safety also plays a key role in supporting inclusion.
  • A continued focus on diversity and inclusion. We know that the pandemic has affected some groups more severely than others, and we should all be aware of the risk the current situation poses to diverse and inclusive cultures. Although this presents great concern, there is also an opportunity to recommit to making progress. Business leaders can make a positive difference by recognising the particular issues that some of their people face and taking action where they can.  This is the time to think about diversity, tackle inequalities and build on the opportunities that a truly inclusive group of people brings.
  • Look after your employees. There is a more pressing need than ever to pay attention to mental health and wellbeing in the workforce – there has never been a more important time to focus on your people. We have discussed some of the different experiences employees are currently having – and have likely not even scraped the surface. The people who work in your firms are the people making decisions that will affect your business, so leaders need to ensure that their employees have the support to be able to take care of themselves during a time of unparalleled stress.

    One approach that managers can take to tackle isolation would be to split tasks between more than one team member in order to foster social interactions and give employees incentives to co-operate and communicate by making colleagues’ work dependent on each other.

    We have discussed how local managers can help to support employees. Senior leaders should also be paying attention to the impact this may have on managers and thinking about the support that they will need to look after front-line staff.

  • Use insights from behavioural science. Research into psychology and behavioural science provides some extraordinarily valuable insights that can be used as a basis for action.

    Replacing informal behavioural cues. Informal chats that would take place naturally in the office could be replaced with larger scale social feedback, using group emails or the workplace intranet. Research on group energy consumption showed that communicating social feedback (approval or disapproval) along with the social norm (average energy consumption) helps to shape behaviour.

    Commitment to good conduct. Another piece of research showed that signing a Pro-Truth Pledge reduced the sharing of misinformation on social media and promoted the good behaviour of fact checking news. A similar approach could be explored to renew commitment to good conduct and integrity, with the potential to take advantage of loyalty to colleagues and create a social norm, with employees making commitments about behaviour to each other rather than to the firm.

    Learning from fundraising. Individuals are motivated by progress towards a certain objective. Research has demonstrated that charity contribution rates increase as recipients approach their fundraising goals and that funds close to reaching campaign goals received more donations than those farther from reaching their campaign goals. This phenomenon, known as the “goal gradient effect” could be leveraged to motivate employees by providing measures of progress towards a goal or a mission.

  • Think, plan, experiment and adapt. We are living with new and complex changes affecting people and culture with little experience to guide us. In uncharted territory, decisions and actions will be experiments in what does and doesn’t work. While, changes need careful consideration before implementation as poorly thought through initiatives could mitigate some risks but magnify others, firms shouldn’t be afraid of approaching this with an experimental mind-set. In a situation where there is little previous knowledge, it will be important to try different approaches, keep track of what is working and what is not – and be prepared to make changes, learning as you go.

Conclusion

The Covid-19 pandemic has changed our world and the way that we work in an extraordinarily short time. It is becoming increasingly evident that we will have to live with and adapt to these changes for a long time and it is far from certain that we will ever return to life exactly as it was before the pandemic.

These changes bring with them great challenges and risks. These are uncharted and difficult waters to navigate. However, in our view there are also great opportunities, and these challenges can be met where leaders are able to move from a crisis management mindset to thinking about how to run their businesses differently, with a strong focus on culture.

Firms that get this wrong run the risk of poor conduct, low staff morale and ultimately, weak future performance. However, those that find ways to nudge behaviours in the right direction have the chance to build business models and resilient cultures that adapt to the new circumstances with positive outcomes for customers, employees and investors.