Banks are often facing structural changes, worried of reputational damage or bankruptcy. To survive in such a complex business environment, banks are still undergoing structural changes - ranging from organisational to personnel to technological. But what is the function of the board to make sure corporate governance is properly installed in such a challenging environment? The answer lies within the definition of good corporate culture.

 Latest FINMA regulatory requirements

A FINMA circular letter highlights the relevance of the board in defining good corporate culture. Published in November 2016, the letter re-defines the regulatory requirements of corporate governance, risk management and the internal control system for banks in Switzerland. Applicable as of 1 July 2017, the revisions stipulate three lines of defense:

1. A re-definition of the role of the board, with an emphasis on its composition, as well as board members’ professional experience and expertise.
2. A new assessment of the risk tolerance of a bank through quantitative and qualitative considerations of a risk governance framework.
3. Bank governing bodies (e.g. board and chairman) to focus on defining and communicating the commercial strategy and principles of its corporate culture, instead of merely defining the internal control system through new controlling measures.

Swiss and foreign corporate culture

The Swiss regulatory framework for banks formally integrates corporate culture as part of the governing body’s responsibility. But this emphasis on culture is not only specific to Swiss regulators. It can also be observed in European regulators, such as the European Banking Authority (EBA), which gives its board the responsibility of overseeing risk and corporate culture. Other examples are the FCA and the UK Senior Manager Regime (SMR), which have increased resources for their “most significant work-streams” on culture.

What action should board members take now?

Although board members spend more time than ever discussing culture, values and expected behaviours, most recognise that firmer action should be taken in this area. The question we hear most frequently from Chairmen and Chief Executives is “how can we oversee corporate culture in a practical and pragmatic way?”. Here are some achievable steps that board members can take to embed a well-functioning corporate culture in business activities:

1. Bring corporate culture onto the agenda

Board members must recognise that a healthy corporate culture does not only serve to protect the corporate image, but can be a valuable asset and a competitive advantage for the company. In fact, it will help drive differentiation and attractiveness for clients and high-potential job hunters who care about the bank’s reputation and core values.

2. Successfully lead corporate governance

Good corporate governance and accountability should be led by example at a top management level. Chairmen and CEOs need to be able to demonstrate that they are developing the firm’s culture through the governing body and oversee the adoption of culture in day-to-day management. In many organizations an identified executive - such as the HR Director - supports both the Chairman and CEO in corporate culture related matters.

3. Assess and enhance existing activities

Board members should assess the efficiency of existing activities to develop a healthy corporate culture. Most organisations already have initiatives underway which help reduce behavioural risk, review remuneration frameworks and optimise the acquisition of talent, diversity and succession. The key to success is the alignment of these disparate projects.

Connecting purpose and strategy to business practices is a key factor to grow a healthy corporate culture. Culture should be part of every board member decision-making process, from strategy development and implementation, to remuneration and nomination decisions. Organisations monitoring culture found that not only more robust risk-taking behaviours were created amongst employees, but that the overall organisational performance was enhanced. As such, board members should place corporate culture firmly onto the agenda.

To read more about this topic, please visit the Deloitte Evolving Board website. 

Alexandre Buga - Partner, Geneva

Alexandre is a certified expert auditor and an auditor approved by the Swiss Financial Market Supervisory Authority (FINMA) to carry out audits of financial institutions and securities brokers. He has worked with a wide range of clients, primarily active in the banking and financial sectors. He has more than 22 years of experience in auditing, consultancy and coordinating important mandates and has worked in France, Russia and Switzerland.

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Stephan Welti - Director, Zurich

Stephan is Head of the Regulatory, Compliance & Legal practice, focusing on the national and international financial services industry. Prior to joining Deloitte, he was Member of the Executive Committee and General Counsel of a leading Swiss Private Bank, following previous roles in that organisation. Before, Stephan has worked at a number of leading business law firms focusing on Banking, Finance and Capital Markets as well as Corporate Law / M&A.

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Sebastien Macaire - Senior Manager, Geneva

Sébastien is a Senior Manager within the Financial Services Audit practice at Deloitte in Switzerland. He has over ten years of experience in auditing and advising large-scale banks and financial intermediaries as well as family offices with a particular focus on financial and regulatory requirements, risk management, corporate governance and restructuration. As an active member of the Deloitte Swiss Centre for Corporate Governance, Sébastien also provides training, tools, coaching and evaluations to governing bodies. He is a Swiss Certified Public Accountant and an acting Master Theses’ juror at the Unimail University of Geneva.

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