As an interested reader of the daily press, I am currently being informed in detail about the unpleasant excesses of a toxic business culture. The latest case revolves around the systemic failure of a renowned Swiss banking institution, which recently had to accept indecent write-offs in deals with Greenshill and Archegos. Needless to say, this matter has the potential to negatively impact my preconception of the financial industry and its players. At the same time, I realize that such a judgment would not do justice to many dedicated individuals, and even entire companies, in this industry. In this context, I would describe as toxic a culture that devalues risk in order to earn a lot from it in the event of good fortune. A culture oriented in this way is well protected. Because in the event of bad luck, there are managers in lower ranks who can be blamed for the damage that has occurred. And as we know, it is much more difficult to hold those accountable who fail to put an end to such a culture. This is despite the fact that leadership also bears responsibility for inaction and for systemic inadequacies. However. There are powerful protective mechanisms at play, which are widespread in hierarchically managed organizations with strong power imbalances. The motto: "Always have somebody between you and the problem". This is how one's own untouchability can be organized. The damage is generalized within the company. The second protective wall, especially in stock corporations, is the diversified ownership structure, which reliably paralyzes the rebellion of the owners. In principle, the business conduct now brought to light by the incidents relies on luck and thus on chance. It is a casino mentality in the true sense of the word.
Without the right culture, risk management is ineffective
A culture designed in this way has nothing to do with risk management. The discipline is carried out, but in the end it has only a fig leaf function. Its origin, namely to bring risks under organizational control, must be understood in a casino culture as a means of minimizing opportunities. This admittedly rather pointed description, on the other hand, makes it clear that risks cannot be brought under control with tools such as risk management or safety management systems alone. A safety culture is needed. Risk managers and their systems can be as good as they want to be; if the culture sets other incentives, they become a toothless bunch in the back office.
What if human lives were at stake instead of money?
A look at high-risk industries shows that an airline, for example, which offers high-risk transportation to millions and millions of passengers, has to operate differently. Like other high-risk industries, aviation is highly regulated. This is a circumstance that is due not least to its questionable performance in the early years of its existence. Regulation, as even the financial industry knows today, follows misconduct on its heels. My daredevil predecessors in the aviation business all too often relied on chance and thus on luck in the construction of flying machines and in their operation. Today, the industry has proven that it has emancipated itself in terms of safety. In 2019, only 283 people died in plane crashes while transporting just over 4 billion passengers.
So the question is whether bankers could learn from aviation when it comes to managing risk. There may be something overbearing about the approach. After all, the way the financial industry presents itself today, we have to assume that it is still in a developmental phase in which it is common for people to indulge in heroism. This could make it difficult for individuals to enter the lowlands of operational, risky business. After all, the recognition that the hero enjoys is based on his willingness to take high risks. Which unpleasantly illustrates how hollow the pedestal is on which he stands. Perhaps it might succeed by pointing out that the heroes of aviation have also climbed off their high horses. Today, for example, the former kings of the skies are the cool-headed risk and systems managers of captain's rank, embedded in polished industrial processes. Every day, they all ensure the protection of their assets - the passengers - and, on top of that, strive for entrepreneurial (also monetary) success with all the means at their disposal.
Culture change as a compelling element for progress
Captains would not be such reliable leaders today if the transition from former hero to systems and risk manager had not been accompanied by a cultural change in the organization. The descent from the pedestal took a good twenty years. The starting point for this development were accidents that people were no longer prepared to accept. Analysis of the events often showed that the heroes of the skies were not as good as they claimed to be. When confronted with the well-founded accident analyses, which consistently revealed the human inadequacy of the cockpit chiefs as a contributing factor, this led to a change in thinking. Thus, in the 1980s, the ground was laid for the urgently needed cultural change.
A new understanding of leadership took hold and simply changed everything that had gone before. The understanding of the role of the leader, the idea of cooperation, the handling of risks and the meaning of hierarchy. The latter in particular was completely redesigned. The power differential was taken away and with it the platform for cultivating airs and graces. After all, it had become apparent that in risky environments it is not very helpful to have a culture of hierarchical subordination. One that is associated with fear among employees and that interprets any reliance by the boss on resources in the team as an admission of personal inadequacy. Moreover, the temptation to abuse power for one's own purposes was too great, if only to maintain one's own status. Hierarchy with power imbalances is a dangerous framework. The medical profession is equally aware of this. Unfortunately, the only inhibiting factor is the fact that those affected ask themselves why they should understand something that is to their disadvantage.
Countless completely unnecessary accidents, which were associated with an infinite amount of suffering, taught us in aviation that we had to regulate ourselves. Employees and managers became embedded in a different culture. There are studies that show that if we had not done this from the 1980s onwards, we would today have to put up with two to three crashes involving commercial aircraft every day.
Culture as an effective protection against trouble
In the aforementioned transformation, we in Aviation not only dealt with the further development of safety management systems, but also with the framework conditions for a safety-oriented culture. It is characterized by fear-free speak-up, both in the cockpit and in the company. Characterized by its team orientation, which is linked to appreciation of the contributions of all employees. Characterized by a willingness to report organizational shortcomings and self-inflicted undesirable events, because mistakes are seen as learning opportunities. By the humble recognition of human fallibility. It is a culture in which managers do not simply shift responsibility to the person involved in unintended incidents. They act in the spirit of 'shared responsibility' and attend to the contributory systemic factors, which may include deficiencies in the culture, and advocate for system improvement.
Such a culture helps to better identify emerging trouble and prevent the risk from occurring. It does not leave the success of the organization to chance but ensures that dangerous solo runs by executives are considered a culture violation. It is a culture that saves the organization from damage and scandal because it promotes internal transparency. It is the necessary add-on to risk management. It is only through safety culture that it can bring its strengths into play. If a company cultivates it, it can be trusted with its own money.