As the Financial Services Royal Commission unfolds, public trust in banks continues to erode. Rebuilding trust will require banks, and other financial institutions, to ask tough questions of themselves and then to effect significant cultural shifts.
The banks have no shortage of advice coming their way, but much of this advice is from the very same experts, some would say fellow travellers, who have ‘helped’ them over the past two decades. As many people have observed across history, to effect genuine change requires new thinking from new sources.
The challenges facing banks remind me of the challenges faced by the Royal Australian Navy a decade ago.
Navy, like the banks, requires deep technical expertise: just as you can’t drive a $4 billion frigate if you have not had decades of experience, you cannot run a $20 billion income banking operation without decades of experience. In short, the banks cannot change personnel: the banks’ current executives and staff, like the Navy’s, are critical to their new futures.
Navy, like the banks, had a deeply entrenched culture. In Navy’s case, this revolved around a machismo that emphasised toughness, working its people hard (sometimes too hard) and giving its people licence to intimidate those perceived as weak.
In the banks’ case, the culture revolves around money. Put simply, money is the customers’ need and the banks’ product (in various forms), money is how business performance is assessed, money is the basis of incentives, and money is how bankers judge each other’s worth.
These cultures are powerful and enduring. The leaders of Navy and the banks grew up imbued in them and so struggle to see outside of them. And their regular advisors share that culture, and so use a dollar-centric approach to measuring value. Clearly, they are not in a strong position to be agents of cultural change.
What can banks learn about how Navy handled these challenges?
Navy wanted to understand high-performing, empathetic cultures and sought outside assistance to achieve it. Rather than engaging advisors and consultants with whom they had worked for many years, in 2007 the Chief of Navy engaged Nous Group, a consulting firm of relative outsiders. Nous was new to the defence world, having only worked with Defence’s senior leaders for two years.
The Chief directed Nous to bring in different, but relevant, viewpoints. Many executive discussions involved lines of thinking like, “A large, global resources company would approach this problem this way…”, “Wesfarmers is an interesting example to learn from…” or “Large manufacturers offer important lessons in transformation…”.
The Admirals asked Nous to actively challenge all ranks, so we sometimes said things like, “That line of thinking is constraining your capacity to move forward…”. We also worked hard to observe the positives: “That is a distinctive, critical Navy strength, so protect and cultivate it at all costs.”
With Nous’ support, Navy also engaged with the world beyond Navy, Defence and government. Navy engaged with the other military arms (including Air Force, which had earlier undergone transformation), other parts of government, and importantly, with the commercial world. Not all lessons were relevant, and some astounded Navy, but all were vital to broadening perspective. Navy also appointed an Islamic Advisor and an Indigenous Advisor to help it better access communities with whom it had rarely engaged.
The Navy was under no illusions that the change could be achieved quickly. Nous worked with Navy leaders to define a new culture, and Navy has spent more than a decade developing and embedding that culture – known as New Generation Navy.
New Generation Navy resulted in many changes, and the result speaks for itself. Over the first six years of its transformation, the Navy’s separation rate (a measure of staff turnover) improved 27 per cent, critical shortages in key technical skills reduced by 35 per cent, alcohol breath-testing results improved 58 per cent, and prohibited substance testing results improved an astounding 82 per cent. These changes contributed to a 21 per cent increase in operational days at sea, a critical measure of success for any navy. The Royal Australian Navy is now a model for navies around the world.
Done right, the potential upside for banks is enormous. But they need fresh perspectives to help forge new paths forward.
Nous has expertise in understanding cultural change in complex and highly regulated sectors. We bring perspectives richly informed by our work with key financial system stakeholders, including regulators, policy makers, and vulnerable communities.
Get in touch to find out how we can help banks learn from the experience of the Navy.
Article by Nous Group Managing Director, Tim Orton.