Change, culture & risk: a primer for financial services executives with agendas

RMA Journal, The, Dec, 2003 by Thomas R. Hofstedt

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The other (highly frustrating) corollary is that you can neither define nor change the lesser cultures without worrying about the higher-order cultures. This is why description, diagnosis, and change must start at the top of the organization.

Culture Change for Dummies

Management 101 has a standard and perfectly fine approach to problem solving. Basically, there are three phases involved in problem solving of this sort:

* Phase I: Descriptive. Where am I? What is my present culture? What are the real values-in-use, the operating mentalities that drive actual transactions and decisions?

* Phase II: Diagnostic/Prescriptive. What should the culture look like? What are the values that should be first and foremost in the minds of the employees? Where are the major gaps between where I am and where I want to be?

* Phase III: Planning and Implementation. How do I actually change the way people think and act? How do we close the gaps? How do I get there? How do I get the rest of the organization to go along? Who gets to do what to whom for how long? How should I spend my time?

These phases are somewhat modular. That is, the institution can choose to do Phase I only or Phase II only. However, the launch of a Phase III program requires that Phases I and II have been accomplished--at the very least, vicariously.

So far, this is nothing more than codified common sense. However, it is seriously complicated by two realities. First, each phase is the subject of numerous frameworks and buzzwords. There is a rich menu of schools to choose from--"hard" versus "soft," people oriented versus systems oriented, top-down versus bottom-up, etc. There is only one other subject area within the management domain (strategic planning) that has more buzzwords per square inch than does changing your culture. Second, the phases will blur, overlap, and recycle. There's a social equivalent of Heisenberg's Uncertainty Principle at work: The very act of describing a core value is likely to change the value. (A classic credit person will think differently once market and operating risk are seen to be embedded in every transaction.) The outside world--the source of the risks--will not stand still, and the target culture will morph into new forms during the process of defining and implementation.

Phase I: Description. Is there a problem? Sometimes, the issue is crystal clear--say, the SEC has issued a subpoena, your problem loans represent 50% of the outstandings, or you have $1 billion unexpected loss in trading operations, etc. The more interesting case study is when things are going well. To question "our collective values about risk" can be provocative, but there are ways around this. The first, best, and cheapest way of assessing values is to start with yourself; introspection is wonderfully instructive. But a culture involves collections of individuals, so you will need to involve others. Herein is a problem, because most of us have learned (the hard way) how difficult it is to understand the values of others.