Increasing focus on business conduct means more challenges for leaders and senior managers in regulated sectors. Are they being sufficiently educated?
What it should cover and how to ensure it’s effective and more than basic ‘compliance training’.
The new financial services Senior Manager Certification Regime (SMCR) has increased the pressure on Directors and senior executives to demonstrate that they are running a business which delivers great outcomes for their customers.
The “Duty of Responsibility” means accountability for how customers are treated and the business conducts itself is clear. In the last decade we have seen regulators across many sectors (financial services, energy, telecoms, utilities, travel, pharmaceuticals) also increasingly turning their attention to how businesses conduct themselves to deliver fair services for their customers.
Most senior managers and Directors receive very little education on this changing agenda and the challenges they face in decision-making and leading their business.
Enterprise Learning has seen an increasing number of requests for Board education and 1-1 coaching for NEDs, Directors and senior managers to help them take on board these new leadership challenges.
Regulated businesses raise unique risks for customers, investors, staff and senior managers themselves. Far too many organisations invest in the development of their customer-facing staff but not in their leaders and senior managers.
So what education should senior managers receive?
The ‘Conduct of Business’ Agenda
Regulators in most consumer sectors are focused on how customers are treated when they buy regulated products and services. Social media and the press abound with horror storiers from the information provided in sales calls to the way vulnerable customers are treated, how firms train their agents and what happens if customers complain. When they get it wrong, businesses are expected to compensate customers quickly – fines and reputational damage is commonplace.
Senior managers need to understand the rules and regulation which govern their industry – many do not, and expect their compliance and technical specialists to fill the gap (like a pilot taking a Health and Safety specialist with him in the cockpit!)
However they also need to understand the priorities and direction of travel for their regulators, how competitor firms are getting it wrong or right and what regulators expect of senior managers in their day-to-day business activity.
When did your senior management team last have a 2-3 hour seminar to understand the latest developments and learn from case studies of business conduct failures?
Governance and Risk Management
Until recently, governance and risk management was the province of legal counsel or risk and regulatory specialists. It is now clear that business managers and leaders are responsible for ensuring the decisions they take, the activities they delegate and the services they deliver are effectively governed.
Risk management and governance is as much a management skill as financial control, people management and business development.
MBAs and executive programmes cover marketing, finance, people and strategy but senior managers are rarely educated in the key principles, skills and knowledge underpinning this new management discipline. As a result we see over-bureaucratic controls or, perhaps worse, processes and practices which harm customers, increase costs and erode long term profits.
Delivering regulated services
Regulated services that deliver fair outcomes consistently to your customers raise many challenges for senior leaders:
- how well are they designed;
- how are staff trained and signed off;
- what quality assurance monitoring is done and does it work;
- how do you know digital technology is working well;
- do customers understand what they are getting and how much it will cost;
- how are complaints handled;
- what about vulnerable customers;
- how is any off-shoring or outsourcing managed;
- how are staff supervised;
- does everyone understand the important rules and regulation.
Senior managers can’t be hands-on for all of this but they need to ask the key questions and get closer to some of the detail than they might in a non-regulated business. They are accountable.
We use our CONSULT Benchmarking tool in workshops with senior managers to help them understand the components of regulated customer services and what questions they need to ask managers and staff.
Culture and behaviour
The financial crash in 2008-10 and some of the higher profile company failures since then have shown regulators and senior managers that they were not paying sufficient attention to the difficult issues of culture and behaviour. Managers and regulators focused more on systems and controls than the human elements, but our research has shown that it is these culture and people that drive great customer service or lead to regulatory failure.
Influencing culture and behaviour is complex and takes a lot of time. Directors and senior managers (as well as risk and regulatory specialists) need to understand what works and what doesn’t and how to tell if culture is changing or if they’re just being told it is!
Our research into regulatory failures in the last decade (Fixing Culture in Financial Services) with its case studies and leadership lessons underpins our senior management masterclasses here.
Good practice in educating Directors and senior managers
Short technical training or even e-learning programmes are common ways of addressing compliance training. But senior managers need and are worth more than this and we recommend all regulated firms should deliver the following for their senior managers:
Understanding: Most sessions we see delivered for senior managers focus on the key regulation and what they need to know. This is necessary (do you do it?) but not sufficient.
Application: Senior people are good at ‘making connections’ and learning lessons from case studies and good/bad practice in our Conduct of Business Masterclasses. Time spent in expert facilitated sessions looking at enforcement notices, cases studies of regulatory failure and discussing how their businesses operate is important to schedule in.
Skills: leadership education should develop skills in decision making, stakeholder relationships, risk management, business change and governance. It should also allow senior managers to explore the dilemmas and ethical challenges they face every day. Our unique conduct risk business game “Risky Business” can be used in conferences and education to simulate running a regulated business.