A recent discussion in the Complexity in Organisations group on LinkedIn drew attention to comments made in June 2010 by the then head of the Financial Services Authority, Hector Sants. In a speech to members of the Chartered Institute for Securities and Investment (reported here), he expressed his view that regulators should have their brief extended to include oversight of the cultures of those organizations that were subject to their regulation. According to Sants,
"Unacceptable culture within firms was a major contributor to the financial crisis and so regulators should play a greater role in judging how culture drives firms' behaviour and impacts on society as a whole, according to the chief executive of the Financial Services Authority (FSA)."
He made great play on the need for prudence in managers' decision-making, before concluding that,
"Determining an ethical framework is for society as a whole, not an unelected regulatory agency. However, it is, I believe, our role to police behaviour and expect firms to have the right culture which facilitates the delivery of the outcomes we expect."
For Sants’s prescription to make sense, though, the following statements would need to be true:
- The “prudence” or otherwise of a manager's decision is obvious at the instant that the decision is made.
- There is a direct causal link between managers' decisions and “societal outcomes”.
- “Culture” is the product of a manager's intentions (i.e. something that they can design, build, and change at will).
- There is a direct causal link between an “unacceptable culture” and the “outcomes [that] that drives”.
So do these stack up?