Episode 3 transcript

Host: Hello and welcome to ASIC View, the official ASIC podcast. On today's episode, I'll be joined by ASIC Chairman Greg Medcraft to talk about culture, its importance to the industry and what ASIC is doing about it. Greg, thanks so much for joining me on the podcast.

Greg Medcraft: Thank you for having me here, Andrew.

Host: Let's start with the basics. What does ASIC mean when it talks about culture?

GM: Well when we talk about culture, we talk about the mindset of the firm. And in fact, the law does define culture, it defines it as an attitude, a policy, a rule, a course or conduct or practice – in effect, it's the mindset of the firm.

Host: So, why is culture such an important thing to ASIC – why are we worried about the mindset of a firm?

GM: Well, clearly the mindset of a firm – what we've found is that the culture often results, if it's a poor culture, it's often pretty closely linked to a poor outcome for consumers. What we're all about is making sure that consumers can actually have trust and confidence in the financial system. So that is a key driver, often, of poor behaviour.

Host: So, culture is sort of the driving factor behind the outcomes that ASIC so often has to regulate.

GM: Yeah, we see poor culture as a key risk, often resulting in poor outcomes to consumers, and we want them to have trust and confidence, so if culture is driving poor outcomes then we really think that focussing on culture, what that driver is, is very important in terms of informing us as to where we take surveillance.

Host: Tell us a little bit about what ASIC is doing and what ASIC is able to do about culture.

GM: Well, at the end of the day we're taking essentially – I call it a two-pronged approach – so on the positive side, we're engaging with boards and where we see poor culture evident in perhaps a large bank, in a particular division, we highlight that with the board and we elevate that. We say look, we've got a problem and we want to work with you to resolve it, and I think that's important. Secondly, more broadly, we are talking to companies about culture and saying to them, well, actually you should care not just about having a right culture to comply with the law, you should have good culture because good culture is frankly good for business. Most people want to work for a company with a good culture. Secondly, if you think about it, if you have a poor culture, you end up with some issues where you end up paying – having to compensate consumers or it affects the bottom line – that's bad. And then, thirdly, and most importantly, when we live in a digital age, where your reputation – it can get through very quickly if you've done the wrong thing with social media – then frankly, at the end of the day it can affect the value of the firm. So we think there's also a broader issue about being positive about having a good culture that puts the customer first, and we see this happening with many financial firms at the moment actually focussing on the customer first, the customer experience.

On the negative side, we are focussing as I say on looking at those firms which actually we do see indicators of poor culture, and that sort of guides us in terms of our surveillance and ultimately, potentially, where we identify things and therefore enforcement.

Host: So they're sort of red flags, in terms where ASIC is focussing its attention – so if you've got an indicator of a poor culture, then you're more likely, I suppose to come under regulatory action for a variety of reasons.

GM: That's correct. I mean often companies go 'It's just a matter of a few bad apples' – well, seriously, if there's so many bad apples you've got to start thinking is there fundamentally a problem with the tree – and therefore we need to think about the tree.

Host: Yep. That leads into my next question, which is who ASIC thinks bears the most responsibility for a firm's culture – is it the employees or the higher-ups?

GM: Look, I think a firm's culture is the responsibility of everybody – that's important – it's something that everybody should be living and trying to make sure they're doing the right thing. But obviously culture starts at the top – it starts at the board, the board sets the direction of the company – and it needs to make sure that it cascades through the firm. And you know, it's not easy. Having the right culture is not easy. You've got to be constantly challenging yourself. You've got to be trying to think about how you measure how your culture is, and that often means trying to reach out to external parties to measure what people really think of you. Measuring what your employees are thinking of the culture of the firm – so, again, it's not easy. How you treat whistle blowers – people who see the wrong thing happening – are they celebrated, are they rewarded? But it is really important. Because this is not just about a regulator looking over your shoulder. it's more broadly about having a business that consumers can have trust and confidence. Especially now, when so many businesses do get disrupted by digital innovation.

Host: Do you think that firms that are looking to create a good culture should be rewarding their employees for living up to the values of that culture?

GM: Oh absolutely, absolutely. Those that actually do the right thing should be rewarded and should be celebrated, and clearly those that do the wrong thing should equally be penalised, particularly if the basically don't live up to the culture that you're looking for – the culture and the values of the firm. That is really where many companies' mindset is heading these days.

Host: That's very positive. When it does go wrong – and ASIC sees bad culture – what enforcement action is available to it?

GM: As I say, you can't regulate culture. We see it as risk indicator and generally what we find is where we pursue that as an indicator we go on and undertake surveillance, often we find misconduct and clearly where we find misconduct we'll seek to enforce the law. So if you want to grab our attention, then possibly having a poor culture is something you probably want to avoid. But again, I'll emphasis as a broader message here, is that good culture is actually good for business, it's good for your employees and it's good for the value of the firm.

Host: Do you think – and this is a question without notice – do you think that bad culture tends to come from the desire for short term gain? Because obviously bad culture doesn't happen for no reason – people can see profits or they can see extra bonuses for themselves – do you think that while ASIC argues that good culture is better in the long-term, there are those short-term elements that might attract people in creating a bad culture?

GM: Well look, you know, the long term is just a series of short terms. At the end of the day, I think that in a digital world, you need to be thinking – trust and confidence is actually a hard-won think but lost very fast. So I think that having that right culture, particularly today where things can change very quickly – you can be disrupted extremely quickly if there's a loss of trust and confidence because things can get out pretty quickly. And I will recount what's happening recently with Volkswagen, where we saw that issue of trust and confidence really hit the firm very hard in terms of the value of the company. How long will it take them to regain, if ever, that trust and confidence? So, I think that you should take a long-term view in terms of building the right culture in your company, because I think, today, things have irrefutably changed, particularly with digital disruption and also with social media.

Host: Yep. Things can go downhill very quickly…

GM: Very quickly. Very quickly.

Host: ...In this day and age. Now, obviously we can't just talk a good game. What is ASIC doing internally to address culture within the organisation?

GM: Well, clearly, culture – we don't just talk about it for third parties. We actually measure our culture every two years. We have an independent staff survey that just allows us to see what people are thinking – and we use that as a management tool to then dig down into the results to identify particular problems in the organisation, and we deal with it. We actually also have very clear values – accountability, professionalism and teamwork – and they really guide the staff on everything we do – how we deal internally with each other – but also most importantly how we deal with stakeholders. We don't just talk about it, we integrate that into our performance management system, so basically our system performance management is what I call the three Bs: your business plan, your budget and your behaviour as reflected in our values. So it's really integrated into everything we do, our values. And it is a challenge – we encourage people to talk up, speak up. One of the things I do, and I said earlier about making sure that you actually reach out as much as you can to the front line – we clearly do stakeholder surveys to measure what people, third parties are thinking – our stakeholders – but also one of the things I do as chairman six times a year is I actually have lunch with more junior and middle-level staff to basically let them speak their mind as to what they think is happening in the organisation and any concerns. So there is not a single way of making sure that your culture is working, and it's still probably an evolving area, but we really do focus on having the right culture and living -  most of the things we talk about are what we try and do as an organisation.

But nobody's perfect, of course.

Host: Yes, absolutely. Greg, thanks so much for joining me on the podcast – really appreciate your time.

GM: Pleasure, Andrew. Thank you very much, great opportunity.

Host: Don't forget to subscribe to the podcast on iTunes – you can follow us on Twitter @asicmedia – thanks so much for listening.