Ask the experts: Speaking up/whistleblowing and psychological safety

Jonathan Davidson, FCA executive director of retail supervision and authorisations, and Dr Roger Miles, faculty lead at UK Finance Academy (Conduct and Culture) on psychological safety in the context of cognitive diversity

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In its culture assessments next year, will the FCA be defining psychological safety as a significant culture indicator?

Jonathan (JD): In our view, a healthy culture is purposeful and safe, and supports environments that are diverse and inclusive. When considering firm culture, we assess how effective four culture drivers are at reducing the potential harm arising from a firm’s business model. These four drivers are purpose, leadership, approach to people, and governance. We consider whether firms are building a psychologically safe environment under the approach to people driver by looking at how effective their diversity and inclusion and ‘speaking up’ arrangements are at driving behaviour that reduces potential harm.

How does the FCA define cognitive diversity? And what is the connection between this and ‘speaking up’, or other aspects of a healthy culture?

JD: Diversity has many dimensions, and people with different life experiences can bring new thinking and inspire different approaches to problem-solving and decision-making. We believe that diversity of thought (cognitive diversity) leads to better decision-making and better enables firms to meet the needs of consumers from diverse segments of society. However, without safety – and without an inclusive culture – the value of diversity will be lost. Firms cannot benefit from true diversity of thought without inclusion.

Roger Miles (RM): Cognitive diversity is perhaps the most interesting new indicator, reaching as it does significantly beyond the traditional diversity labels of gender, ethnicity, and social origin. I'd be very interested to see any firms embracing broader measures of cognitive diversity, such as neurodiversity, which is often overlooked. Also, any measures that correlate cognitive diversity to better problem-solving and decision-making in the long term – that’s where its real value to the business lies. 

With firms now working in a largely virtual environment, how can they best ensure psychological safety, so that staff feel safe to speak up?

JD: Psychological safety is crucial to creating an effective virtual working environment. Firms sometimes think that if they have whistleblowing policies in place, they have psychological safety in their organisation. But, while having an effective whistleblowing process is incredibly important, it isn’t a substitute for psychological safety, which exists within teams. Leaders at all levels need to build and maintain psychological safety in their teams and organisations and need to educate themselves on what it is and how to do this, so they can be a role model for the behaviours required and lead by example. Leaders and teams should especially consider how they cultivate psychological safety in a virtual environment, and not just assume that team dynamics that existed in the office will translate across. We have seen signs that the use of video technologies for interactive ‘town halls’ is improving confidence to speak up and to engage with senior people.

RM: This is a challenge, as surveillance and security considerations during working from home are creating greater levels of stress and distrust among many firms’ employees – a recent report by the Chartered Institute of Personnel and Development says that workers reject the idea of “heavy workplace monitoring”, which is perceived as “stress-inducing, demotivating and dehumanising”. It’s hard to balance team morale-building against this. I have seen no convincing data that highlights any improving trend of ‘speak up’ during working from home. Against a background of widespread staff cuts, any improvement here would seem unlikely. The single best way to encourage speak up – and morale generally – is for team leaders and senior managers to make themselves visible and routinely available: management by wandering about. But that's harder to do meaningfully via video technology.

About the experts

Jonathan Davidson is executive director of retail supervision and authorisations at the FCA.


Dr Roger Miles is an expert in the field of behavioural risk and faculty lead at the UK Finance Conduct and Culture Academy.

His book, Culture audit in financial services, is due to publish in June 2021.

How have attitudes to psychological safety changed since the onset of the pandemic?

JD: Leaders are aware of the continued need to cultivate psychological safety, and of the potential for exclusion and polarisation of employees brought about by the current working environment, but aren’t necessarily sure how to go about addressing this. Over the past two years, through our Transforming Culture initiative, we have encouraged firms to experiment and apply scientific rigour to culture change. We are currently in the midst of a major experiment, living with new and complex changes with little experience to guide us, and while changes need careful consideration, firms shouldn’t be afraid to approach this with an experimental mindset.

RM: It is clear that the pandemic has brought vastly higher levels of stress both to providers and their customers. It will be interesting to see whether the regulator’s culture assessors give any credit to those firms that have made significant extra efforts to support the mental health of staff and customers during the pandemic. Working from home brings a whole new set of stresses and even nine months on from the first lockdown in the UK, it’s still too early to see what deeper effects this may be having on underlying notions of trust, authenticity and team cohesion – and that’s before we even track regular mental health with any kind of benchmark. We shouldn’t let the obvious ethical sensitivities put us off exploring this further as a foundation for healthy culture; it’s going to be hugely important post-Covid-19.

Do you see the Senior Managers and Certification Regime (SMCR) as promoting these themes (psychological safety, cognitive diversity) and if so, how?

JD: Senior managers have a duty to prevent misconduct, and one of the best ways they can do this is by driving healthy cultures in their organisations. A culture that is purposeful, safe, diverse and inclusive is one that will reduce risks as well as lead to increased innovation and more engaged people. We also have Conduct Rules that apply to everyone in a financial services job. We want people to speak up where they see things that are wrong, but they need a safe culture to be able to do so.

RM: These were not apparent themes before now, albeit SMCR implies them in its support for ‘hands up’ challenge and ‘all-round-the table’ socialising of risk for better problem-solving. I would like to see culture assessors making an explicit connection between SMCR and these two indicators in future.  

In its culture assessments, how does the FCA look for signs of where firms don’t make their employees feel psychologically safe? Or conversely, signs of a healthy culture?

JD: In relation to psychological safety, we consider the effectiveness of the processes in place to enable speaking up, how leaders promote speaking up and create a psychologically safe environment, and the actions taken in response to staff concerns, amongst other things. We take sexual harassment and bullying and other so-called non-financial misconduct very seriously. It is an extreme manifestation of an unsafe culture. We take information into account from all our interactions with firms to reach a judgement on how effective each culture driver is at reducing the potential harm arising from the business model. If the culture drivers are effective in doing this, we consider the culture to be healthy.
How’s our sector faring when it comes to overcoming a ‘bystander culture’ and supporting the moral courage needed to make a challenge?

JD: We view both lack of diversity and inclusion, and tolerance of non-financial misconduct, as obstacles to creating an environment in which it is safe to speak up. While we have seen commitment to creating safe, inclusive cultures and increasing diversity, there is still a great deal of progress to be made, and doing so is in firms’ best interests. Speaking up and creating inclusive, safe environments isn’t just about calling out poor behaviour – in organisations where staff can speak openly and, crucially, are listened to, the best talent is retained, the best business choices are made, and the best risk decisions are taken.

RM: Listening to what regulators and firms have been saying at various financial services sector group debriefings (including the CISI), the regulator has been trialling two new styles of observational inspection, the ‘floor-walk’ and ‘come over for tea’. These suggest that firms are going to be facing more thoughtful and more direct questions in the future around ‘events of challenge’. One of my favourite of the prototype questions on that topic is: “When was the last time anyone in your team put a hand up to question something that wasn’t working – and what happened to that person next?” What matters is not just that someone put a hand up, but how well the firm engaged with the question raised and, perhaps most importantly, how they treated the person who plucked up the courage to raise a hand, who’s only trying to do the right thing, after all. 

Do you often – or ever – find regulated firms that have succeeded in creating high levels of psychological safety, cognitive diversity, or other signs of a healthy culture? In what ways is this good for business rather than simply ‘doing compliance’?

JD: We have seen a tangible mindset shift in some leaders who have come to see understanding and managing their firm’s culture at the same level of importance as their strategy. These leaders are taking ownership of their firms’ cultures, not because it’s fashionable, or because the regulator says they should, and not just as a compliance exercise. Instead, they are acting because they understand the benefits of a healthy culture. They recognise that healthy cultures can deliver long-term sustainable benefits for employees, consumers and shareholders, and help firms avoid large-scale risks from crystallising, manage conduct risk and be more innovative. In short, they understand that healthy cultures are good for business.

RM: This implies that these and similar forms of benchmarking for culture might become the norm. Although that's methodologically challenging in the short term, there are already tools available to create such benchmarks. There’s also a deeper question here of how we deal with data that reveals what to an extent is perfectly normal difference in cultural styles between different parts of the market. It will be fascinating also to see how this approach to culture assessment feeds through in practice into measures of ‘acceptable and expected’ engagement – for example, acknowledging and tolerating the cultural differences between money market traders and vulnerable customers.

This article was originally published in the February 2021 flipbook edition of The Review

The full flipbook edition is now available online for all members. 

Seen a blog, news story or discussion online that you think might interest CISI members? Email bethan.rees@wardour.co.uk.
Published: 09 Mar 2021
Categories:
  • Wealth Management
  • Risk
  • Integrity & Ethics
  • Compliance
Tags:
  • featured
  • whistleblowing
  • Sustainable Development Goals
  • speaking up
  • SMCR
  • neurodiversity
  • mental health
  • conduct and culture
  • cognitive diversity

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