Developing cultural capital – board level impact By Nagaraja Kumar Deevi

developing cultural capital – board level impact

by Nagaraja Kumar Deevi

Building Cultural Capital is an evolving challenge across the Industries, not just a Banking and Financial Services Industry issue. In the recent months, financial services regulatory agencies in the US and UK are leading the effort in addressing the challenges. Cultural Capital, unlike Financial Capital, Economic Capital, Regulatory Capital, and Liquidity Capital can’t be measured in financial numbers, income, or net worth. Cultural Capital, on the other hand, deals with human capital that includes behavioral aspects, skills and knowledge of employees rather than the product and design lifecycle methodologies, revenue and growth forecasting models, that run against large population of data.

Cultural Capital is both a tangible and an intangible asset and is the employees’ collective wisdom working across the business lines within the organization and its impact on the society. It is not just a task that is identified, validated on a monthly or quarterly basis, and closed after the annual performance measure.

Developing Cultural Capital is not an independent business function or a sole responsibility of just the CEOs or boards of directors. Cultural Capital Framework must come from both top-down approach and bottom-up approach with an oversight on monitoring and driving effective influence of the workforce to overcome the social stigma, ethical paradox in decision-making and cultural misconceptions.

Building Cultural Capital is growing concern. Building Culture includes accumulation of knowledge, behaviors, education, skills, and evolves along with the organization growth, while retaining the business values. It is hard to quantify the Organizational Culture as it is often based on perceptions, personal motivations, blindness to objective consequence and failure to consider the ethical dimensions of decisions.

developing culture is a mission critical task

Defining an Organizational purpose, that encompasses employees and management with shared values, code of conduct embedded within Ethical Policy, and communicating the cohesive cultural values effectively, is the foremost responsibility of the management in every organization.

Understandably, cultural change is a long journey, especially in a toxic environment, where trust and integrity of the leaders are measured. One of the difficult processes is of developing a framework with “meaningful value” with economic measure. Emerging technologies, including social media, create and contribute to different ethical experiences and challenges. Management teams must consider behavioral phenomena, ascertain that the AI systems that are created generate reliable outcomes, avoid overreliance on AI to cover the bias in effective decision making and achieving optional results.

importance of creating psychological safety: creating cultural capital

Amy Edmondson, a Harvard Professor and author of the book The Fearless Organization, explains what psychological safety is, what it is not and how to create organizations. Creating organization is all about building human capital in a complex interdependent environment and challenging the status quo of emotional intelligence.

Business leaders play an important role in developing the Cultural Capital and help in setting up a stage for an honest, challenging, collaborative, and effective work environment that encourages employee candor, management openness, and building mutual respect. While developing the Cultural Capital framework, incorporating the Psychological safety chart, in my view amplifies the Cultural Capital in terms of shareholder value and reflects on the market performance.

designing cultural framework

Learning from the earlier missteps is the foundation for developing and foundation of the cultural capital Framework.

Leadership Impact – Organizational Cultural must align with overall strategy and objectives. Leadership must ensure and establish the importance of Risk management practices and embrace the culture of the continuous training and development. Behavior Matters – Culture and Conduct must follow the moral code. All employees must be accountable for their actions and lead by example.

One of the key developments in 2019, during the Business Roundtable summit, a group of 181 CEOs signed the pledge, and announced that they committed to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders.

According to the New York Fed – Cultural Capital is a principle that defines the behavior, mindsets, and norms that determine how people act, that makes companies more resilient to potential misconduct losses or misconduct events. Tone at the Top - management teams must take responsibility for how their decisions affect organizational culture and become accountable for their actions. Designing a rewarding system is one of many ways to overcome the misconduct risks. During the financial crisis, Wells Fargo management team’s ethical business behavior was widely published and in most recent weeks Boeing 737 missteps, causing CEO resignation etc., resulting in reputational loss and loss of public trust, reflected directly in the market performance.

empathy-driven leadership and emerging challenges

Empathy is a key leadership quality that inspires greater innovation as businesses embrace emerging technologies that take the control away from humans and their decision making. An evolving trend that needs further research work is around behavioral sciences and economics, to eliminate cognitive bias across the workforce in the highly volatile geopolitical environment.

A recently published research study, emphasized on effective risk management policies and practices, allowing financial institutions for great transparency and appreciation, with strong Independent Risk Management Culture.

best practices for setting up the cultural capital framework

Boards of Directors must ensure Cultural Capital framework is independent of CEO oversight

Board of Directors and Management committees proactively share information early and often.

references

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https://www.newyorkfed.org/medialibrary/media/governance-and-culture-reform/nyf-culture-conference-june-4-2019.pdf

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Research work from Professor. Amy Edmondson from Harvard Business School. “The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation, and Growth”

https://www.hbs.edu/faculty/Pages/profile.aspx?facId=6451 – https://www.wiley.com/en-us/ The+Fearless+Organization%3A+Creating+Psychological+Safety+in+the+Workplace+for+Learning%2C+Innovation%2C+and+Growth-p-9781119477266

https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans

Nagaraja Kumar Deevi

Nagaraja Kumar Deevi is a senior strategic executive with over two decades of Leadership experience in Finance, Risk, Regulatory, Digital, Analytics and Technology enabled solutions advising Global Banking & Financial Institutions. He is currently Managing Partner & Senior Advisor at DEEVI Advisory & Research Studies. NAG is specialized in Digital Transformation, Banking regulations, Regulatory Policy & Affairs and Enterprise wide Strategic Risk initiatives. Designed and developed Enterprise Risk Governance Framework aligned with firm-wide Corporate strategy, setting high level Regulatory Policy, Risk Appetite Statement, Recovery, and Resolution Planning (RRP)/ Living Wills, Culture, Conduct & Reputational Risk. Effective utilization of Tools &Techniques addressing Risk Assessment, Risk Identification, Risk Measurement, Prioritize Risk & Risk Mitigation & Risk Response processes. NAG works closely with Academia and Research studies on Risk & Analytics and AI based startup companies through knowledge sharing, Solution Approach & Go-to Market strategy, and has advanced management studies from Harvard, Columbia, NYU, Kellogg’s & MIT.