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Article:

Culture in Financial Services: Lessons From Lloyd’s

07 October 2020

In 2019 Lloyd’s of London, the world’s largest and oldest specialist insurance market, embarked on a programme of improvement to the corporate culture embedded across the market and its member firms. This followed the identification of a series of historic culture failings within the Lloyd’s market, including in excess of 500 reports of sexual harassment within Lloyd’s 2019 culture survey.

As part of the market’s continued commitment to improving culture within insurance, in July 2020, Lloyd’s launched its inaugural ‘Culture Dashboard’, aiming to transparently track the evolution of the culture embedded across Lloyd’s member firms. “Culture” in the context of insurance is a broad term; the FCA, for example, has identified four key drivers of culture, in Leadership, People Policies, Governance and Purpose. Meanwhile, Lloyd’s has taken board priorities and diversity in terms of gender, ethnicity and sexual orientation as the point of departure.

The need to strengthen corporate culture is not exclusive to the insurance market, however, and Lloyd’s Culture Dashboard serves as a reminder of the growing importance of proactively managing culture within the financial services sector. 

Lloyd’s dashboard

In July 2020, Lloyd’s introduced a formal ‘Culture Dashboard’ to capture changes in the culture embedded across its market and member firms. The dashboard will be updated annually, with Lloyd’s second annual culture survey set to be conducted in October 2020. The initiative targets an enhanced framework for measuring progress towards embedding a positive, sustainable culture, and promoting positive customer outcomes and stakeholder confidence. As part of this, there is a particular and continuing focus on the diversity and inclusiveness within the Lloyd’s market.

To achieve this, the dashboard presents anonymised data gathered from Lloyd’s member firms on an annual basis, including measures of diversity in terms of ethnicity, disability and sexual orientation. Part of the initiative is to formalise and strengthen Lloyd’s accountability for the culture embedded across its market and members, thereby helping to set the right ‘tone from the top’.

To help formalise the aims of the initiative, Lloyd’s have outlined a number of formal targets around culture, including:

  • Promoting transparency, inclusivity and diversity within its markets
  • 35% female representation in leadership positions (including Boards, Executive Committees, and direct reports) by the end of 2023, with a 20% combined target for Board and Executive Committees
  • Enhanced collection of data around ethnic diversity by Lloyd’s firms (with a view to formalising a market target for ethnicity by Q2 2021).

Implications for the broader Financial Services sector

Recent work on culture has not been exclusive to the Lloyd’s market, however; the steps taken by Lloyd’s over the past approx. 24 months are symptomatic of a broader shift across the Financial Services sector. Establishing and maintaining an appropriate corporate culture has been steadily growing in importance within the financial services regulatory environment. This is reflected in the inclusion of culture within both the FCA’s and PRA’s 2020/21 business plans, as well as the FCA’s recent work around promoting diversity and inclusion within financial services.

Whilst culture is a key regulatory priority, it is also growing increasingly important as a priority for firms. In 2020 for example, Goldman Sachs announced they will no longer underwrite IPOs for businesses with insufficiently diverse Boards; it is clear that meaningful, demonstrable work to embed an effective, sustainable culture is becoming an expectation amongst firms operating in financial services. In addition to clearly articulating firms’ desired culture, there is a growing focus on being able to effectively measure, monitor and manage culture. For instance, firms are increasingly expected to have established tangible cultural indicators that can then be monitored and reported on an ongoing basis.

Aside from meeting regulatory expectations and remaining abreast of industry practises, embedding and maintaining an effective corporate culture brings a number of benefits to firms, including enhancing the sustainability of business models, increasing employee satisfaction and improving stakeholder relations.

COVID-19 and Culture: Re-Think?

The impact of COVID-19 within insurance and financial services has been profound, affecting most (if not all) aspects of Firms’ businesses. Culture is no exception to this; the new ways of working to which Firms have adjusted are inextricably linked to establishing, embedding, monitoring and measuring culture.

Going forward, Firms will need to effectively manage and adapt to a range of culture challenges as a result of the pandemic. How should culture be monitored when staff are not in the office? What markers of culture will be most relevant in the future? What effect will changes in business priorities have? These questions will form critical considerations as Firms continue to adjust to, and shape, the ‘new normal’.

In particular, Firms’ culture arrangements will need to be adaptable in order to meet current demands as well as future challenges expected as the business environment continues to evolve. The returns to establishing and, critically, maintaining, an effective and sustainable corporate culture have never been higher; Firms that are able to successfully navigate the challenges of COVID-19 are likely to reap the enduring benefits typically enjoyed by Firms that have embedded strong corporate cultures.  

Market insights

As a growing number of firms seek assurance and advice over their arrangements surrounding culture, themes are naturally emerging as to how good (and bad) culture manifests, what the implications are for businesses, and what steps Boards need to take to effectively manage culture at their organisation.

From our perspective as a ‘trusted adviser’ to a wide range of financial services institutions, there are a number of common indicators that shed light on the culture in place at firms, including:

  • Ownership and accountability amongst senior management and the Board. In particular, a common characteristic of firms that seek to improve is that of a ‘blame culture’, which undermines accountability where it is most important in the business
  • Staff satisfaction and turnover. Firms with a robust corporate culture benefit from higher levels of staff satisfaction and reduced staff turnover, each of which are key indicators of the sustainability of firms’ culture and business models
  • Transparency and communication. The effectiveness and transparency of communication across all levels of firms’ businesses often sheds light on the robustness of the broader culture in place. Firms that lack appropriate transparency and /or effective communication often exhibit broader cultural weaknesses that negatively impact many areas of the business.

From our experience in the market, weaker corporate cultures usually hinder Boards’ effectiveness, and are often ultimately associated with reduced business performance. Moreover, firms with weaker cultures often risk falling into negative-feedback loops, where the relationship between culture and Board effectiveness becomes self-sustaining.

How can we help you?

Our Financial Services Advisory team has considerable experience in assessing the arrangements in place surrounding corporate culture across a wide range of financial institutions including insurers, banks, and asset and wealth managers. Our team comprises a number of highly experienced professionals with regulatory expertise and knowledge of good practises across the FS sector, including a significant number of ex-regulators from both the FCA and PRA.

We offer the wide range of services that you would expect from a global professional services firm. In particular, we can:

  • Review culture frameworks to provide assurance that regulatory expectations are being met
  • Identify areas for enhancement to firms’ culture arrangements and propose tailored recommendations for improvement
  • Review the governance, reporting and management information systems, processes and controls in place that are relied upon to measure, monitor, support and promote an effective culture
  • Add value by guiding firms through regulatory expectations and wider industry practises
  • Benchmark firms’ culture arrangements against members of their peer group.

All of our work is tailored to the size, nature and complexity of each business we advise, to ensure we provide robust, but proportionate, support. For more information, please contact us to discuss how we can help.