Tools for measuring culture: quality, quantity - or both?

Culture is now widely understood to be a driver for both conduct and prudential risks within organisations; the culture of the firms they regulate is a focus for both UK financial regulators. The difficulties inherent in assessing culture create real challenges for those tasked with managing and overseeing these risks: can you measure your culture to test where it sits on the scale from healthy to toxic and how this may be changing over time? A series of recent publications on the topic provide interesting food for thought on how to tackle those challenges, suggesting firms would do well to move away from a model that relies primarily on taking the temperature through employee surveys to develop a more nuanced, multifactorial approach.

What are you measuring?

There are numerous definitions of organisational culture within the literature, but for these purposes it makes sense to adopt that used by the FCA: the habitual behaviours and mindsets that characterise an organisation. The FCA does not seek to assess these directly but instead focuses on what it calls drivers of behaviour that can lead to harm: purpose, leadership, approach to managing and rewarding people, and governance. Some contributors to these drivers can be easily described and assessed for compliance against the applicable rules, for example remuneration arrangements, the governance and management structures in place. Others are not so reducible; and in any event reporting of this sort does little to capture the way in which those arrangements and structures operate in practice and whether they promote positive or harmful conduct. 

Survey plus: a subjective, qualitative approach

The standard answer to how to assess these cultural drivers is the annual staff survey, supported by more focussed enquiries where topical issues arise. Such surveys provide helpful insights into how employees across an organisation or within certain functions describe that organisation’s culture: their understanding of its purpose, view of its leadership, etc. The information gathered can be illuminating – but the limitations of such surveys are widely known: low or variable response rates may mean that they are not truly representative; even anonymous participants may seek to manage the impression they create (consciously or otherwise); and their value as a means of assessing changes in culture over time is debatable. 

Some writers on the subject have suggested that the right way to develop a deeper understanding of culture is to conduct detailed enquiries, informed by ethnographic approaches including extensive interviewing. In some circumstances the benefits of this approach will be clear: in the aftermath of incidents that suggest cultural failings it makes sense to conduct a detailed forensic exercise to examine the causes of the failings in order to learn lessons from them and avoid recurrence. But in the absence of such a trigger it can be difficult to justify the significant resource commitment involved. 

In search of objectivity

Another route is to seek an objective basis for assessing culture, based not on employees’ descriptions of their experiences but on analysing quantitative data. 

Earlier this year a working paper published by the Bank of England adopted the Organisational Culture Profile model for categorising culture along six dimensions which can then be separately assessed. The standard dimensions are integrity, inclusivity, adaptability, detail orientation and customer orientation; for the bank sector the paper’s authors added risk orientation (i.e. the organisation’s riskiness, measured by reference to its balance sheet and capital requirements). The working paper’s authors identified twenty objective measures that did not depend on staff responses – so-called unobtrusive indicators of culture – that were used to generate a score on each of these dimensions and hence for culture overall. The indicators used included complaints data to assess the score for customer orientation; whistleblowing and employee fraud data for integrity; and diversity data for inclusivity. This scoring system allowed for a meaningful link to be drawn between a firm’s culture score and its riskiness. 

A combined approach?

The most recent article on the topic on the FCA’s Insights blog sounds an understandable note of caution, highlighting that an approach driven solely by reported data may not be sufficient to illuminate the reasons why people behave as they do and hence enable organisations to bring about cultural change where this is needed. 

In our view firms would do well to review the tools they currently use to measure and assess their culture, to achieve a balance between the use of surveys and other employee feedback mechanisms with data-driven analysis of cultural indicators. The working paper’s authors were able to draw on information available to UK regulators. Firms should consider their own data sources to identify which indicators they track and how best to combine these to inform their understanding of their culture and its evolution over time. Retention data, diversity statistics, and analysis of grievances, whistleblowing and other reports of concerns and disciplinary processes are all valuable sources of information regarding behaviours within a firm; taken together, these enable continuous assessment of a firm’s culture.

How we can help

Our contentious regulatory practice works with firms where conduct issues have arisen to explore the cultural drivers for such issues and to advise on how these can be addressed within the context of a broader remediation exercise or otherwise. We combine this experience of real world issues with our technical expertise to advise on the key drivers of culture that are often the subject of regulatory scrutiny, including governance and leadership structures and remuneration arrangements, working closely with colleagues in our Employment & Incentives team to do so.