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People Risks, Compliance Motivation and Culture PART 2: Solutions Keryl Egan Stormont Consulting Presented at the 6 th Annual Financial Services and Compliance Conference, Sydney, February 9-11, 2009

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Applying Influencer to Compliance Motivation and Culture <ul><li>Influencer is a Vitalsmarts programme which provides a </li></ul><ul><li>methodology for bringing about behavioural and cultural change. In </li></ul><ul><li>this presentation Influencer is applied to culture change at the </li></ul><ul><li>hypothetical Blue Sky Bank. </li></ul><ul><li>Keryl Egan is a Vitalsmarts certified trainer for Influencer and Crucial </li></ul><ul><li>Conversations. </li></ul>

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Navigating Change with Influencer Influencer The Power to Change Anything

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<ul><li>Problems with Compliance Motivation </li></ul><ul><li>Measures of the current culture on the trading floor at </li></ul><ul><li>Blue Sky Bank indicate that 55% of traders regard </li></ul><ul><li>compliance as obstructing their trading objectives and </li></ul><ul><li>therefore seek ways of circumventing or ignoring </li></ul><ul><li>regulations. </li></ul><ul><li>Blue Sky Bank is seeking to develop effective internal self </li></ul><ul><li>regulation and to preserve its reputation as a socially </li></ul><ul><li>responsible corporate citizen. </li></ul>Setting the Sails for Change Blue Sky Clarifies is Current Position

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Setting the Sails for Change with Influencer

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Applying the Influencer Model <ul><li>Clarify Blue Sky Bank’s outcomes : </li></ul><ul><ul><li>Why does compliance matter and what has to change? </li></ul></ul><ul><ul><li>Research the context and problem. </li></ul></ul><ul><li>Find Vital Behaviours : </li></ul><ul><ul><li>What would people have to do to obtain the Bank’s desired compliance outcomes? </li></ul></ul><ul><ul><li>Who does it well and what can be learned from them? </li></ul></ul><ul><li>Crucial Moments : When do the vital behaviours matter the most? </li></ul><ul><li>Use Influencer Six Sources of influence to promote selected vital behaviours </li></ul>

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Clarifying Outcomes: More external regulation or more internal motivation <ul><li>The National Australia Bank solution: Excessive focus on process, documentation and procedure manuals rather than on understanding the substance of issues, taking responsibility and resolving matters. </li></ul><ul><li>A Carapace: Measures external to human motivation do not have the flexibility, judgment and balance necessary for human systems. </li></ul>

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DESIRABLE OUTCOMES Internal Values and Grace in Execution <ul><li>Personal and Social Values Develop an internal backbone & core strength in the company through shared and stated values </li></ul><ul><li>A Framework provides Safety Regulations and compliance are used to provide a framework for good judgment, initiative and informed risk taking </li></ul><ul><li>Compliance and Freedom </li></ul><ul><li> An agile, motivated culture provides security and strength but also allows for boldness, skill and degrees of freedom. </li></ul>

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Blue Sky Bank Develops a Desirable Outcome <ul><li>Outcome Statement </li></ul><ul><li>“Within 12 months, by July 1 st 2010, there will be a </li></ul><ul><li>70% measurable improvement in traders’ ability to </li></ul><ul><li>reach their trading goals whilst working within current </li></ul><ul><li>regulatory requirements.” </li></ul>

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Design a Setting for Pro-social Growth <ul><li>Arrange a hierarchy of experiences </li></ul><ul><ul><li>Start with a single, small act of responsibility or acknowledgement </li></ul></ul><ul><ul><li>Gradually escalate these acts of responsibility or acknowledgement </li></ul></ul>

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INFLUENCER: Find the first Vital behaviours <ul><li>Find specific and measurable behaviours which demonstrate </li></ul><ul><li>that traders are actively pursuing their trading objectives and </li></ul><ul><li>observing current regulatory requirements. </li></ul><ul><ul><li>What would you see the person actually do which shows this? </li></ul></ul><ul><ul><li>What would be the impact if they did this? </li></ul></ul><ul><ul><li>How can you measure it and its impact? </li></ul></ul>

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Derive Vital Behaviours from General Principles for Pro-social Growth (Zimbardo) <ul><li>Encourage admission of mistakes </li></ul><ul><li>Encourage personal responsibility - prevent diffused responsibility </li></ul><ul><li>Reduce anonymity by acknowledgment of self worth </li></ul><ul><li>Support critical thinking - discourage blind conformity to the norm </li></ul><ul><li>Discourage small transgressions which can escalate </li></ul><ul><li>Reward moral behaviour </li></ul>

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Examples of Vital Behaviours at Blue Sky Bank <ul><li>Speak up about violations of compliance rules and challenge each other on the spot </li></ul><ul><li>Admit to mistakes without fear of reprisal </li></ul><ul><li>Encourage challenge , problem-solving and discovery of innovative solutions </li></ul>

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INFLUENCER MODEL: Define Crucial Moments <ul><li>When are these behaviours critical to success? </li></ul><ul><li>At what time of day, month, year does it matter most? </li></ul><ul><li>Which conditions make it a crucial moment? </li></ul>

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Examples of Crucial Moments <ul><li>When someone has just ignored or by-passed a regulation </li></ul><ul><li>When business is brisk and time is short </li></ul><ul><li>You have made a mistake and you are tempted to hide this </li></ul>

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Putting It All Together <ul><li>Research and Diagnosis: The reason for by-passing regulations </li></ul><ul><ul><li>No time </li></ul></ul><ul><ul><li>Poor systems and access to daily changes in regulations </li></ul></ul><ul><ul><li>Pressure from clients or upper management </li></ul></ul><ul><ul><li>Inexperienced back office staff </li></ul></ul><ul><ul><li>Compliance regulations don’t make sense or have no real meaning </li></ul></ul><ul><li>Vital Behaviours : Start small and add more behaviours over time. Blue Sky Bank starts with </li></ul><ul><ul><li>Traders speak up and say ‘no’ to clients even when they may lose the client for doing so </li></ul></ul><ul><ul><li>Middle and back office say ‘no’ to traders who ignore compliance </li></ul></ul><ul><ul><li>All check regulatory changes consistently and often </li></ul></ul>

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Sources of Influence to Promote Compliance & Achieve Desired Outcomes <ul><li>Research shows </li></ul><ul><ul><li>most people apply only one source of influence at a time when they want to change behaviour </li></ul></ul><ul><ul><li>People who use multiple sources of influence achieve better results X 10 </li></ul></ul><ul><li>Designing an influence strategy takes time, skill and courage BUT…..it makes success inevitable!! </li></ul>

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Six Sources of Influence for 3 Vital Behaviours Speaking Up, Admitting Mistakes, Volunteering Ideas Use office design, data and cues plus IT tools to keep the vital behaviours in mind Design incentives and rewards for speaking up, admitting mistakes and innovating Structural Seek support of senior management who are willing to provide resources or knowledge and problem-solving Find role models and opinion leaders to help others to speak up, admit mistakes and volunteer ideas Social Provide training to enable the vital behaviours e.g. Crucial Conversations training for speaking up in high stakes situations Connect the person to their own values. Create a crisis of conscience by expecting people to speak up. Personal Ability Motivation

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Creating an Influencing Strategy <ul><li>Source of Influence 1: Managers describe socially responsible reasons for compliance and speaking up & admitting mistakes: give stories and examples </li></ul><ul><li>Source of Influence 2 : Training in communication provides skills for speaking up </li></ul><ul><li>Source of Influence 3: Engage opinion leaders to lead the way </li></ul><ul><li>Source of Influence 4: Upper management provides resources and removes technical obstructions to compliance and problem-solving </li></ul><ul><li>Source of Influence 5: Public acknowledgements and rewards for speaking up, admitting mistakes and finding solutions. </li></ul><ul><li>Source of Influence 6: Place reminders, data and cues in easy to see places </li></ul>

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Measuring Success <ul><li>Measures compliance incidents, reporting and handling over the year to July 1 st 2010. </li></ul><ul><li>Criteria for team performance and productivity includes behavioural measurements and ratings </li></ul><ul><li>Measure pro-social engagement, collaboration and job satisfaction over one year from base measure </li></ul><ul><li>Analyse and evaluate results to determine next steps </li></ul>

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Continuous Improvement <ul><li>Define the next set of desirable outcomes </li></ul><ul><li>Develop the next set of vital behaviours </li></ul><ul><li>Construct the next influencing strategy </li></ul>

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P.O. Box 327, Leichhardt NSW 2040 Ph: 02 9564 0425 Mobile: 0414 734 840 Email: [email_address] Website: www.stormontconsulting.com Thank you

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References <ul><li>APRA, March 2004: Report into Irregular Currency Options Trading at the National Australia Bank </li></ul><ul><li>Bullen, D: Fake : My Life as a Rogue Trader. Publ. by Wiley 2004 </li></ul><ul><li>Calavita, K and Pontell, H: Heads I win, Tails you lose: Deregulation, Crime and Crisis in the Savings and Loan Industry 1990 </li></ul><ul><li>Enron: The Smartest Guys in the Room HDNet Films 2005, Dendy DVD </li></ul><ul><li>Heimer, C. “Thinking About How to Avoid Thought: Deep Norms, Shallow Rules, and the Structure of Attention” in Regulation & Governance (2008) 2, 30–47 </li></ul><ul><li>Miller, A. The Sociology of Good and Evil, Guildford Press, NY, 2004 </li></ul><ul><li>Parker, C. The Open Corporation: Effective Self Regulation and Democracy, Cambridge University Press, 2002. </li></ul><ul><li>Patterson K, Grenny, J, McMillan, R, Switzler,A “Crucial Conversations: Tools for Talking when Stakes are High” NY 2002 </li></ul><ul><li>Patterson K, Grenny, J, McMillan, R, Switzler,A. “Influencer” McGraw Hill, NY 2008 </li></ul><ul><li>Price Waterhouse Coopers. Investigation into foreign exchange losses at the National Australia Bank 12 March 2004 </li></ul><ul><li>Sheedy, E “ Applying an Agency Framework to Operational Risk Management” CMBF Papers No.22 Applied Finance Centre, Macquarie University, August 1999 </li></ul><ul><li>Steare, R “ What’s wrong with business: Integrating Profitability, Responsibility and Ethicability”® Price Waterhouse Coopers </li></ul><ul><li>Stevens, Glen: “Education, Integrity and Common Sense.” MAFC Issues Paper, 2003 </li></ul><ul><li>Thompson, Dianne: “Accountability and Board Functionality: National Australia Bank’s Experience”. Paper for presentation at the 11th Finsia - Melbourne Centre for Financial Studies Banking and Finance Conference, “Banking and Securities Markets: Convergence, Innovation and Regulation” 2006 </li></ul><ul><li>Zimbardo. P: “A Situationist Perspective on the Psychology of Evil: Understanding How Good People Are Transformed into Perpetrators” in A. Miller, The Social Psychology of Good and Evil. Guildford Press, NY, 2004 </li></ul>