Newsnight’s economics editor Paul Mason is presenting a programme called Credit Crash Britain on BBC2 this evening. As part of his investigation, he discovered an internal document from HBOS, written in 2004, which shows:
– the bank knew there was a mismatch between the sales culture and the risk controls: the risk controls had “not kept pace” with the sales culture.
– that the regulator was worried about this – and about the potential development of a culture that was “overly sales focused and gives inadequate priority to risk”.
Of course, HBOS was not destroyed by aggressive selling. It was destroyed by lending long term and borrowing short term. But it’s clear to me, from reading the report, that the regulator was aware of a cultural problem at the heart of HBOS: that the balance of management experience lay in the direction of sales, and that those with risk control functions were having difficulty slowing the bank down.
Paul Mason is probably right but have you noticed how often, when things go pear-shaped, the culture of an organisation is blamed?
Mergers and acquisitions are the classic cases. Senior executives get very gung-ho, talking about ‘synergies’ and the opportunity to ‘leverage each others market positions’ – you know the stuff. Bosses get very excited about takeovers. But the minute everything goes sour, as sure as the sun is going to rise, they will blame ‘cultural misalignment’ for the merger’s failure to deliver the promised benefits.
How often, though, do firms really try to get to grips organisational culture? If it’s such a stumbling block for mergers, why don’t companies tackle it during the merger process?
I have been asked to do assessments of company cultures during mergers. The results are often surprising for senior managers when they realise that integrating two organisations is going to be more difficult than they thought. But, to quote an old saying, forewarned is forearmed. Once you know where the cultural pitfalls are likely to be, you can do something about them.
But the companies that do this are an exception. Most simply ignore organisational culture until they need to use it as an excuse for why something has failed. Perhaps that is because it is such a hazy concept. It can be difficult to get to grips with and so people often over-simplify it.
If I hear one more person say that ‘Culture is the way we do things around here’ I will be sick. As a definition of culture it is all but useless. If that’s all it is, you’d just change the way you do things and be done with it.
Culture is made up of beliefs and assumptions. These direct ‘the way people do things round here’. Until you change those assumptions, you can’t change a culture. Beliefs and assumptions are mostly unconscious but are shared by a group. It’s almost like the group’s hidden operating system or its rules of the game. When one set of unspoken assumptions meets another set of unspoken assumptions, you get a culture clash. That’s what happens when companies merge.
It is only by surfacing a group’s cultural beliefs, which will often come as more of a surprise to those that hold them than to an outside observer, that they can be understood and managed. Just being aware of the unconscious rules of the game in each other’s companies can help groups of managers work together more quickly. If you handle it carefully, you can even get them to have a laugh about it.
If, four years ago, senior executives at HBOS were worried that the bank’s aggressive sales culture had got out of control and was leaving the rest of the firm behind, they should have done something about it. It would not have been easy but it would, with the right approach, have been possible.
If business leaders insist on blaming organisational culture when things go wrong, shouldn’t they be taking a more proactive approach to it? In any other situation, blaming something you have consistently failed to manage for your failure would surely be regarded as negligence.