What are the results of the examination you performed of the conduct and culture at the top level of the organisations?
‘The examination revealed that management and supervisory board members tend to be strongly focused on substance, and use this as the basis for delivering optimum results. Obviously that’s fine in itself. But many financial institutions still have too little awareness of the impact of conduct on performance. Some organisations are genuinely working on this, while others have yet to begin. Management and supervisory board members are still failing to adequately call each other to account for undesirable conduct.’
What does DNB expect of the board members of financial institutions?
‘We are encouraging them to apply self-reflection so that they are aware of how their conduct helps or hinders their organisation’s goals. But it’s not enough to just leave it at that: they must also be courageous enough to call each other – and third parties – to account for their behaviour. That’s how you convert negative patterns of conduct into more positive ones.
‘We believe that solid self-reflection and mutual accountability for conduct are key to the success of a company. DNB is therefore calling on board members to reflect carefully on their own actions and draw lessons from them. The interviews we conducted showed that the majority of directors recognise the importance of conduct and understand the strength of its impact on the effectiveness of decision-making and hence management.’
So the decision-making process must be more thorough?
‘Yes. DNB expects management and supervisory boards to engage in an extremely thorough decision-making process, in which there is genuine scope for questioning and counterargument. This is not yet being done often enough. I’m not saying there’s no critical capacity whatsoever in the sector, just that it’s not yet being explicitly organised or effectively deployed. This situation can and must be substantially improved. For example, meetings can be organised in such a way that they elicit a constructive critical dialogue in which everyone around the table can actively take part. This can be done through various measures, such as getting someone to play devil’s advocate so as to crank up the debate and defend the interests of all stakeholders.’
And chairmen should become less dominant?
‘We did notice that many chairmen have a dominant leadership style. DNB expects them to be able to apply different styles of leadership flexibly, depending on the situation. They should play an enabling role and encourage input from all the board members.’
What else will DNB be doing?
‘We will be checking to see whether all the institutions where we identified problems are genuinely following up on the issues that need improving. We’ll also be carrying on with the theme-based examinations. For example, we’ll be working with the AFM to identify the factors that affect the speed of changes taking place in the financial sector. We want to use the findings to give an impulse to the willingness to change in the sector.’
Presentation of findings
The report Leading by example presents the main findings of the examination of conduct in the board rooms of financial institutions.
DNB attaches particular value to dialogue with the sector on conduct and culture. During the ‘Leading by example’ seminar, held on Tuesday 19 March, DNB presented the findings of the examination, and representatives of financial institutions explained how they approach conduct and culture at board level.