Culture barometer

1. Culture during COVID

COVID is shining a unique spotlight on culture within organisations. How firms react during the current crisis is a focus for staff, regulators, consumers and investors.  The pandemic is also creating unique challenges for firms.

• Workforce - since mid-March 2020, UK employers have been encouraged to facilitate employees working from home where possible. Having a large proportion of the workforce working remotely will be new territory for most employers and involves a wide range of considerations from staff wellbeing through to compliant use of government support. See here for a more detailed range of employment considerations relevant to workplace culture at this time.  Culture will also be critical in emerging from lockdown into the "new narrative" - link to our recent webinars on return to workplace planning here.
• Conduct - if culture is what happens when no one is watching, this is a period which will test the culture and conduct risk frameworks of many institutions. In addition an unprecedented shift to remote working, heightened stress and market pressures may lead to increased conduct risk. Firms need to be confident that their systems and controls are fit for purpose in the new environment and that they are able to identify and manage misconduct. Data will have an ever increasing role to play in helping firms to monitor and assess conduct risk. Read more here and here about how harnessing data can help firms to identify trends and patterns and take complex information and make it quick to assess and act on.
• Governance - the essentials of your corporate governance: leadership, effective decision-making, care for the workforce, the community and other stakeholders, board effectiveness, access to relevant, timely and quality information, and more, remain the same during COVID, but are now supremely important. Add to that rapidly changing rules on matters such as financial reporting and dividends and the need for clear thinking, accurate information and a long term view become more critical than ever. Link to our recent Insights for Boards here.
• Senior Managers - COVID will be the first or most serious test many Senior Managers and firms will have faced under the SMCR and it is perhaps inevitable that the FCA will conduct a review of how firms dealt with this episode.  In a regime that focuses on individual accountability, it is crucial that Senior Managers keep their responsibilities at the forefront of their mind during this time. The reasonable steps expected of Senior Managers - including regarding culture - need to be considered through the lens of the pandemic and adapted accordingly. Senior managers need to be proactive in responding to the challenge.
• Consumers - the FCA has been clear in Dear CEO letters and guidance that it expects financial firms to continue to provide strong support and services to customers during this period of disruption and that how firms choose to treat customers during this period is likely to inform its assessment of firm culture. Yet again, firms need to be mindful of wider scrutiny and regulatory and ethical considerations as they manage their business through COVID.
• Remuneration and reward - one of the FCA's culture drivers, there has already been significant focus on reward and remuneration in the short and long term under COVID. Public perception, government support, PRA guidance for dual regulated firms on cash bonus expectations during COVID, general regulatory risk adjustment expectations under the wider remuneration codes: firms' approach to prudent management, appropriate risk adjustment and reward will be a key culture metric for firms in all sectors now and in the future.
• Whistleblowing - firms must be prepared to deal with concerns and whistleblows relating to both the public health and customer-facing aspects of their responses to the crisis. Read more about whistleblowing during COVID here and Top 10 considerations for NEDs.

2. Culture beyond COVID - FCA Business Plan 2021/21

Reminding us of a life beyond COVID, the FCA last month published its business plan for 2020/21, setting out the FCA's strategic focus for the next three years. Culture in financial services will remain a key priority with an ongoing focus on the FCA's 4 key culture drivers in firms - purpose, leadership, approach to rewarding and managing people, and governance - and their effectiveness in reducing the potential harm from firms' business models and strategies. With a stated shift of focus to more rapid enforcement against smaller firms that consistently fail to meet the FCA's required standards, firms need to take stock now of FCA expectations during COVID and beyond. See our Insight here.

3. ESG

Companies face an ever-increasing focus on environmental, social and governance (ESG) issues and pressure to deliver sustainable, long-term success in a socially responsible manner. In the UK, this is combined with greater emphasis on (and regulation around) engagement with stakeholders and employees and alignment of companies' purpose, values and strategy with their culture. In the new narrative, assessment of delivery on ESG goals will inevitably involve a focus - particularly with regard to the S and the G - on how firms have responded to (and continue to manage) COVID issues.