in 1977 a KLM jimbo jet was standing on
a runway on Tenerife Airport in the
cockpit the pressure was mounting the
crew had been waiting for quite a while
and fatigue and impatience was kicking
in the airport was extremely busy there
was bad weather air traffic control
systems didn’t really work well and the
visibility was very poor and as a result
the crew did not know that it was an
other plane standing on the same runway
from which the KLM jet wanted to take
off only the Giulia flight engineer was
aware of that yet his warnings were
dismissed by the captain due to
seniority and hierarchy not only was the
captain in the upper ranks of the KLM
organization he also taught the junior
flight engineer how to fly and as a
result the warnings of the junior flight
engineer were dismissed quite easily and
it not really influenced the decision of
the captain to take off and just before
the wheels of the KLM plane lifted from
the runway it crashed into another plane
that same plane it was still standing
there
Pan Am jet and it caused one of the
major aviation disaster in history
causing an enormous amount of casualties
exposed analysis revealed that this
terrible accident was caused by a
combination of structural and human
factors and following this analysis
interaction measures were taken to
influence the interactions within the
cockpit thereby trying to diminish the
influence of behavioral and pediments
such as hierarchy and seniority
now the inclusion of the human factor
really smart the beginning of an era of
the culture of aviation safety
now when the financial crisis hit the
world in 2008
economic analysis was initially dominant
and two of my colleagues wondered why
the human factor was seldom on stably
absent and they started thinking about a
way how to integrate behavior into our
supervisory methodology into how the
perspective on behavior and culture
could contribute to realizing our
organizational objectives being
enhancing the financial strength of
financial firms and now a couple of
years later and still after continuous
development of our methodology it is
still based on three very simple IDs the
first one is is that behavior drives
performance and the second idea is that
many organizational problems often have
the same identical behavioral root cause
and the third ID was if we are able to
integrate these behavioral perspective
in in supervision we might be able to
better prevent and maybe also solve
problems now the question is how do we
get more grip on behavioral patterns
through supervision
the answer is we perform a lot of
examinations we try to identify
behavioral patterns mostly in the top of
the organization and we try to figure
out what the effects of these patterns
are and to do this we have designed
several instruments one of them is the
instrument called board effectiveness we
look at boards and we try to get a grip
on their behavioral patterns so we look
for example at leadership styles if they
are a dominant CEO neglecting the input
of others or is leadership style much
more facilitative in a sense that it
encourages others to participate in
discussions and bring their perspectives
forward but we also look at whether or
not institutions are capable of
successfully transforming their business
model their organization or their
culture for adapting to new
circumstances is vital for sustained
performance and for this we use our
instrument which we call change
effectiveness in our risk culture
assessments we look at how traders deal
the difficult relationship between
reward and risk we want to know their
personal values and we want to know that
personal mindset and we also look at how
the culture of the group might impact
their personal decision making now let
me emphasize that we are not normative
in our approach we do not prescribe how
to behave under all circumstances nor do
we work with checklists with predefined
criteria for good and bad behavior
because what works in one situation
might be very counterproductive in
another one we expect however boards to
reflect on their own behavior to see
what the impact of their behavior is and
to adjust that patterns is necessary and
we do not work on this assumption either
that there is only one superior culture
each culture may have its virtues yet
also its own risks and as a supervisor
we want to identify this risk and we
want institutions to eliminate them and
in spite of this all we do not have a
totally neutral view on culture in our
opinion behavior must always contribute
to prudent management or ethical
behavior when we see that institutions
take excessive risks or display in
ethical behavior we will use our powers
to fight against them let me now give
you some examples of what we have
encountered in the supervision of
behavior and culture what we often see
is that boards do not really challenge
proposals that in the do not really
discuss risks or alternative options as
a results decisions are often taken
without proper scrutiny causing damage
to the institution and its customers now
this may have various reasons there may
be structural reasons for example that
the rules are roles and responsibilities
between the decision-makers are diffused
or that insufficient information reaches
the board so that it has to decide on
the basis of incomplete information but
there are also a lot of behavioral
reasons for this instance
efficient challenge at board level first
of all there may be a very ambitious
growth strategy and this may create a
mindset in which the aim for profit is
the dominant aim and not that in this
mindset risks are unimportant however
they are not as important as making a
profit this does not only manifest
itself at board level entire
organizations may suffer from the
pressure of overly ambitious strategies
now dominant leadership might be another
reason for insufficient challenge at
board level because it may frighten
others to speak up and to share their
perspective but not only dominant
leadership styles may have its vices
also other leadership styles may create
problems for example let’s say fair
leadership styles let’s say fair
leadership styles causes urgent
decisions to be postponed and creates
room for interpersonal conflict and this
may result in indecisiveness or even
distorted cooperation now a special
challenge may not only be the cause of
those who lead also those who follow may
create problems followers may be subject
for example to estranged for consensus
they assume very easily the position
that is held by the majority of the
group even even when they know that that
position is wrong yet the fear of being
scorned by the group prevents them from
bringing them their own opinion other
supervisory findings that we have relate
to the way institutions are dealing with
change and firms encounter many
obstacles in dealing with change one of
them is making insufficiently clear what
they actually expect from managers and
employees in a new situation in terms of
new behavior as your result change is
often superficial and it’s not really
completed until the end and another
obstacle for effective change
that top echelon that the board
delegates the responsibility for the
change to lower levels within the
organization now that may be perceived
as a signal that this change is not
important at all so in the end the
result might be that the change effort
is not really credible and that it’s not
really finished now how do we perform
the supervision of behavior and culture
these were the findings but how do we
get these findings we use a combination
of traditional instruments combined with
innovative approaches we gather
information through desk research and
interviews we hold multiple interviews
at board level as well as at the levels
immediately below to see what the
behavioral patterns at these levels are
but we also perform board observations
and the which is a rather new approach
we sit in at board meetings to observe
the dynamics within the group as a
fly-on-the-wall so to speak and it’s
obvious that it’s a bit awkward for
these directors that we are there they
are not used to us being there but it is
our experience that our presence becomes
quite normal after 15 minutes and it’s
our experience that board meetings
resume their natural cause another very
important element in the supervision of
behavior and culture is trust for if
there is no trust between a supervisor
and those whom we supervise nobody is
willing to share his or her experiences
his personal experiences with his
supervisor or reflect on their own
behavior and we try to start building
trust by extensively explaining what we
will be doing that we will not put them
on a sofa to dig into their past we do
it that we will look at behavioral
patterns at the level of the group so
not the individual level but the group
level and furthermore we try to build
trust by explaining that we will not
punish them if something goes wrong it’s
about for us it’s about creating lasting
change not so much about enforcement and
furthermore we try to build trust by
objective and verifiable judgments and
for this we need specific expertise we
built a multidisciplinary team not only
including governance specialists or
change management specialists but also
trained organizational psychologists for
being able to observe group dynamics and
to have neutral objective and respectful
discussions about it is an art in itself
and finally we try to build trust by
demonstrating that we’re also willing to
challenge ourselves that we are open to
the comments of others and that we are
really willing to listen now when we
started the supervision of behavior and
culture a couple of years ago I had no
idea that one day I would be so
committed to it than I am today and I
asked myself quite often why this is why
this is nevertheless the case and the
reason actually is quite simple when
people are under pressure or when they
feel threatened they often lose their
authentic way of doing things they do
not see others as equal partners but
often only as obstacles to realizing
their goals through the supervision of
behavior and culture I hope to
contribute to cooperation within
financial institution and to introduce
and to restore a bit of humanists in
financial organisations for I’m
convinced that meeting others as equals
in this constructive decision-making
processes not only contributes to better
decisions but also contributes to
respect cooperation and mutual trust now
summing up in four-point behavior drives
performance to problems within
organizations often have the same
behavioural root cause and three as a
supervisor it is possible to identify
behavioral patterns and to influence
institutions to do something about it
and a final comment that’s the fourth
point it’s not that this type of
supervision is a magic pill and that
cures automatically
cures all ills it is not so it is
crucial that we combine this behavioral
perspective with a structural
perspective that is also very present of
course in Financial Supervision it is
effective not in isolation but only in
combination and the reason for that is
symbol because two is always stronger
than one thank you [Applause]
Be First to Comment