View the Risk Forum event on CISI TV
Roger, who has a doctorate in psychology of risk, spoke at a CISI Risk Forum event on 3 March called ‘Different is better: why board diversity matters’. This talk received good feedback from delegates, and Bryan was asked in a subsequent debate to capture Roger’s thoughts for consideration and practical board application.
Bryan met with Roger to understand his work with UK Finance regarding the development of diversity within financial services, specifically related to improving risk and governance accountability and outcomes under the Senior Managers & Certification Regime. You've said that diversity takes diverse forms. Which diversity indicator best predicts for team performance?
Read on for Bryan's Q&A with Roger.
It's great that we're all using a wider range of diversity indicators now – gender, ethnicity, social origins and so on – but the best indicator is none of the above, it’s a thing called cognitive diversity. In simple terms, it’s the capacity to consider problems in new ways, free from preconceptions. Often that’s embodied by a mix in the room of all those other diversity factors, plus some other new elements, such as a mix of non-neurotypicals.
How have corporate health indicators of value and purpose changed?
The whole Conduct project asks us to take a fresh look at the way we report value and purpose in business. In the past we’ve looked to classic indicators of business financial health such as capitalisation, efficiency, solvency, profitability – the things you are used to seeing in an annual report from a public company. Now, we’re looking for assurances about how well the business looks after its human relationships with staff and customers and with wider stakeholders including suppliers, the public, politicians, and so on.
Read our special report on purpose in the June 2020 edition of The Review
To be able to give this assurance you need to verify that you have, and can point to, a culture based on psychological safety. This can be tested by determining how comfortable each member of staff is about asking a serious question without fear of reprisal.
Psychological safety itself rests on several elements such as diversity, moral courage (for example, speaking up), and people’s personal understanding of their firm’s social licence. On that last point, how situationally alert are staff and senior managers, meaning how routinely tuned in are they to the topics that customers, investors, regulators, supply chain partners and fellow employees most care about today? And if they are, how do they share this knowledge?
What is the problem of the ‘work tribe’?
One reason why we engage in any collective activity, whether it’s Zoom calls, a sports club, or working together, is that we evolved as human animals to be sociable creatures; we’re best suited to living in tribes. We find it comforting to be surrounded by people who think the same way, who reflect our perspectives, who confirm our views. This we feel validates our world view and it stimulates the pleasure centres of our brains, like a hidden gravitational force, reassuring us and making us feel safe.
Our unconscious biases encourage us to hire stereotypes based on current team members
But of course, you’ll have spotted there is a problem in there. Although our brain chemistry rewards us for the pleasure of living in this echo chamber, unfortunately it does nothing to challenge our resistance to ‘other ways of doing things’ – which we express, often unconsciously, in the form of biases. We all have these unconscious biases as a product of our upbringing. Though many of these biases are harmless, they may also take socially unacceptable forms, ranging from microaggressions that distress colleagues to more obvious blind spots in empathy. Ironically, these undermine the very sense of common purpose and cohesion that a tribal social structure evolved to develop. Whether or not we recognise it, whenever we are looking to hire a team colleague our unconscious biases are at work encouraging us to hire the person who most fits our preconception of what a supportive member of the tribe looks like – the default is often a stereotype based on its current members.
To overcome this problem, we need to strive to look beyond our innate preference for ‘more of the same’ and to make a conscious effort to welcome challenge from diverse thinkers. Consider the alternative: if everyone in your team has a similar view of how the world works, based on their family upbringing, system of education, and so on, nobody is likely to bring to the table an alternative viewpoint, let alone to anticipate what a competing interest might be about to do. If you have people around you who routinely consider alternative and dissenting views, based on a wider variety of different experiences of their own, not only will you get a richer and more accurate view of the world – you’ll spot and solve business problems far earlier.
Why is cognitive diversity the key to better risk oversight?
As a general premise, the greater the range of human experience you bring to bear on identifying a problem, the better you’ll be able to overcome it. Being able to draw on a resource of people with a wider range of ways of thinking and life experiences helps avoid the collective blindness brought on by ‘assumed framing’ of a topic; it prevents the onset of groupthink – a condition where people suppress their own divergent thinking, usually out of undue deference to the status of the group they’re in, such as board or senior committee meeting.
Yet healthy challenge is vital to prevent overconfidence and at its best, is transformative. The biggest leaps forward occur when groups of people don’t just pursue incremental change, but recombine – exchanging and merging ideas from different fields. In plain parochial terms of conduct reporting, rather than high strategy, if you adopt this approach it’s a simple way to show that your ‘challenge function’ is working, which of course keeps conduct regulators happy as well as improving your grasp of risk and hence business resilience.
What new reporting or management information is a good example of regulated conduct (to risk oversight)?
At the slight risk of oversimplifying the ethical landscape I like to divide conduct reporting into, on the one side, the virtues and on the other, their ‘evil twins’. In current regulatory jargon, some of the most valued virtues are: psychological safety, moral courage, reflexivity, cognitive diversity and intellectual humility. The ‘evil twins’ of these are, respectively: abusive behaviour, bystanding, pointless habits, stereotyping and motivated reasoning.
The good news is that behavioural research already exists to identify reporting management information (MI) for all ten of these factors – the virtues and the vices. The even better news is that you don't in fact need fancy academic models to derive meaningful observation-based MI for most of them.
To take just two easy example indicators: instead of running an elaborate and unnerving all-staff survey on psychological safety, you could simply look at entries on the website Glassdoor.com, where staff past and present are already publishing their frank appraisals of your culture. If you’re unsure whether you have a problem with bystanding (that is, a culture of denying or dodging problems) take a look at how many workarounds of various kinds are around you in your business – creative dodges, expedients that people use to skip over the problem rather than to address it.
By the way, it's not just IT people who use workarounds; everybody does this from time to time. Some other industries even give the practice a fancy risk register label such as ‘authorised deviations’, but they’re still the same thing: creative ways of putting off addressing an underlying problem.
The two behavioural MIs that correlate most clearly to business value are cognitive diversity and psychological safety
So yes, we could go the route of importing fancy academic MI tools such as the Active Open-Mindedness Scale, or the Implicit Association Test, or Cultural Cognition. Or we can walk more directly towards the issue and make some practical changes. Simply reorganise senior managers’ diaries to make sure that they spend more time ‘socialising risk learning’ – that is, having informal, status-free conversations with people at all levels across the business, staying alert for early and weak signals of risk. Do more ‘Town Hall’ meetings and be careful to configure them so they really work (most firms don’t, by the way). Introduce time for challenge and blue-sky discussion into board and committee schedules.
Finally, although there’s some scepticism over whether we can find reliable ‘silver bullet’ indicators that answer the really big questions, I’d suggest there are two strong candidates for this kind of top-level MI. These are the two behavioural MIs that correlate most clearly to business value (as well as, of course, virtuous conduct in the regulated sense): cognitive diversity and psychological safety. The research evidence is clear: where these two factors are present, you will keep your best staff, spot problems sooner, solve them better, innovate and build business, and have more loyal, better quality clients. All of that brings obvious benefits in terms of reducing routine business running costs but more importantly, it also delivers a big long-term boost to the retained value of the business.
Any final tips?
If you’re interested in reflecting on the definitions of psychological safety, here are references from a couple of books and based on the FCA’s latest reading material:
“A belief that one will not be punished or humiliated for speaking up with ideas, questions, concerns, or mistakes, and that the team is safe for interpersonal risk-taking.”
Amy Edmondson, The Fearless Organization, 2018
“A climate in which team members are not afraid to express themselves, feel accepted and respected; a fertile environment for thinking, creativity, innovation and growth, that leads to more collaborative relationships and an overall improvement in team productivity.”
Dan Radecki, Psychological Safety, 2018
At individual level
Not being exposed to "social rejection which triggers a stress response that compromises our cognitive abilities", suppressing "higher, logical brain activity [such as] thinking, creativity, decision-making and self-control", inducing "a stress state in which we can find it difficult to concentrate, make decisions or control our emotions".
Lupien et al, 2009The original version of this article is published in The Risk Coalition blog. Edited version republished here with permission.
For more information on Roger, visit his LinkedIn page.