Two Essential Leadership Strategies for Changing Company Culture

August 11, 2008

Two Essential Leadership Strategies for Changing Company Culture

When money is tight, what do you do? Stop spending cash? And what does your company do? The same, I bet. You stop taking risks. You stop doing new things. You hope your problems will clear up soon.

There’s something else you can do besides freeze like a deer in the headlights. Something constructive. And it could turn your business round faster than you imagine. You could take an unusual lesson from the banks.

Today’s financial chaos is no joke. The global credit crunch and recent financial scandals have rocked many of the world’s biggest banks. Several chief executives have quit. Many others are hanging on - for now.

Unless you work in the financial sector, you might think this chaos doesn’t have a lot to do with you. But some banks are trying to tackle the financial crisis in an unusual way and we can learn from them.

They’re not just tightening up their checks and balances, making sure they have tighter control on spending and risk-taking. They’re also taking a long, hard look at their company culture.

The culture of your company, or “how we do things round here”, is something that affects each and every one of us as leaders. It affects each and every company. When your latest attempt to introduce a change fails, there’s a good chance it’s because your staff believe “that’s NOT the way we do things round here”.

Now, you probably appreciate that your leadership style can profoundly influence your company’s culture. If you’re the sort of boss who holds people to account for every mistake, who insists on knowing all the details, who is afraid to delegate, then your staff are going to be reluctant to risk making a mistake. They’re going to be afraid to innovate.

Doesn’t this sound like the company culture in a bank? But in the wake of the recent scandals and financial losses we’ve seen, things are changing. And we can learn a tremendous amount from what some of the big banks are trying to do.

They’re trying to change their company culture. They are trying to overturn years of doing things the same old way. The jury’s out on whether the changes will have an impact. Changing company culture is notoriously difficult. So it will be interesting to see whether they succeed in the long term. But we can still gain some inspiration from what they’ve started doing right now.

Let’s look at a couple of examples. A rogue trader blew a large hole in the finances of the French bank, Societe Generale (or SocGen), when he lost them more than $7bn. An internal report into the scandal says that, within SocGen, managers were not alert enough to the risk of fraud. “It’ll never happen here,” they thought. Managers were also used to working on their own and sorting their problems out themselves. There was a strong culture of independence and entrepreneurialism. And this made it a place where management just left people to get on with things.

Straight away the bank clamped down on almost everything to prevent further fraud. But it also recognized the need for bigger changes. While it wanted to prevent further fraud, it didn’t want to lose the entrepreneurial spirit that made it successful in the first place.

So the success of the bank’s transformation programme relies on the bank’s ability to spread among all employees what it calls “a culture of responsibility, discipline and mutual respect”. And here are some of the strategies it’s using to spread the word.

1) The bank is preparing practical handbooks, tailored to each business, that specify each participant’s roles and responsibilities.

2) It’s introducing formal trader mandates, documents that spell out what a trader can and can’t do.

3) It’s also developing a training programme on how to prevent fraud.

4) Next, it’s overhauling the appraisal process so that it deals with people and behaviour as well as numbers and profits.

5) It’s also implementing a communication and awareness programme on how to make its principles of professional ethics real and do-able.

6) And finally it’s developing a hiring programme and reviewing pay scales to help identify the different kinds of senior manager and support staff the bank needs in future.

Now I’m not sure creating more paperwork will help. It probably won’t be read, to be honest. But bringing new people in from outside will definitely help, as long as they’re supported by senior managers at the beginning.

What I really hope the bank will achieve with all this activity is not just add layers of bureaucracy. I hope it’ll succeed in changing some of the stories that are told round the institution.

My main concern is that the rogue trader will be regarded as a maverick by most employees, as a legend. And the myths of what he did will be passed from person to person, like stories about Robin Hood or any other folk hero.

These stories can’t be stopped, but they can be crowded out by new stories about new “mavericks” and new leaders. But this won’t happen through the official grapevine, such as the company newsletter or the intranet. These stories have to be spread through the unofficial grapevine: round the water cooler, in the coffee bars, in the corridors. And that will take a lot of sustained effort by the senior managers in the company. That’s where the guidelines and courses will be useful, for spreading stories about the new mavericks and the new ways of working.

Now, anyone who has tried to change a company culture knows what a struggle this is going to be. Trying to get something intangible spread, like new stories, is going to be tough. It’s difficult enough trying to use a pen with your ‘other’ hand, or to fold your arms ‘the other way’. But to change the way a large group of people thinks and works? This is a big challenge.

In the USA, another sprawling bank, Citigroup, is also tackling its corporate culture. But with perhaps a more pragmatic programme.

Citibank lost $40bn in credit-related losses and - as a result - lost its CEO, Chuck Prince. The new man at the top, Vikram Pandit, aims to foster a more co-operative environment.

Now, the lesson here is that he is doing this partly by overhauling the bonus system for top managers. Yes, in future, Citibank employees will be tangibly, financially rewarded for co-operating with each other and behaving like true partners. (Not just partners in name only.)

Pandit’s plan is to minimize infighting among the many different parts of the business. Previously, your bonus at Citibank largely depended on the performance of your own division.

Business analysts fear that some managers are going to resist these changes. Some bosses won’t want their pay linked to businesses outside their control, they think.

But co-operative behaviour is not something that comes easily, especially if a business previously had a culture of competitiveness. Collaboration is a skill and a set of practices that needs to be learned and applied.

The journey from one culture to another is fraught with anxiety. It’s difficult to control or guide such a complex beast. But if you put in place intangible mechanisms, like creating new stories, with tangible mechanisms, like rewarding collaboration, you’re likely to be far more successful than the average leader.

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Tags : leadership, leadership training, leadership development, banking sector, corporate culture