Culture change

APRA sees the culture of superannuation funds as critically important to the protection of members, sound prudential management and industry financial stability. SEAN MCGING reviews why this view is becoming stronger and how culture should be a constant priority for leaders.

Culture drives the best outcomes for members

Leaders in superannuation funds, service providers and regulators must steer their organisations with courage, creativity, and conviction to build capabilities that are strong, trustworthy, adaptable, resilient and innovative.

To successfully build and sustain all of these characteristics over a lifetime will depend on having the right culture! And if anyone had any doubt about that, witness the enormous positive impact made by leaders grounded in the right culture during the COVID-19 pandemic, and vice versa.

Why is culture so important for leadership?

To quote the father of business management thinking, Peter Drucker: “Culture eats strategy for breakfast”.

What is culture?

Organisational culture is often defined as “what really goes on around here”. It is crucial to consider culture through the lens of “why does the stuff that goes on around here happen?”. A core part of this is the tacit assumptions of an organisation. Tacit assumptions are often formed by the actions, behaviours and mindsets of the most influential people in the organisation – the formal and informal leaders.

How the board leads is crucial

The “tone from the top” influences behaviour. The successful relationship between the board and senior executives in taking aligned actions in service of members is also crucial. Leaders at all levels need to cascade the right actions through an organisation – the “tune from the middle”.

World-renowned expert Edgar Shein identified that the top four drivers of organisational culture are all leadership attributes. In order of effect:

  1. What a leader attends to, measures, rewards and controls
  2. How leaders react to critical incidents
  3. Leader role modelling
  4. Criteria for recruitment, promotion, and retirement

The importance of culture in superannuation

Learnings from the Hayne Royal Commission, and related financial services leadership investigations into culture, governance and accountability including the independent Prudential Inquiry into CBA, clearly show that shortcomings in culture increase risk and lead to adverse outcomes.

But culture’s importance goes well beyond risk. In a mature culture, strategy can be explored in depth in a challenging yet safe, trusting, collaborative setting. Actions will be more effectively executed and supported when espoused values match the values being lived daily by leaders and staff.

Super funds must adapt over time to be the best they can be – continuously improving employee behaviour, ways of working, relationships, strategies and processes.

Matching core culture on values is a critical determinant in considering fund merger goodness of fit, providing the foundation for success.

A good culture in superannuation puts the member at the heart of every decision.

APRA’s leadership expectations on culture

APRA has been publicly preaching that sound risk culture is critical to risk reduction since the GFC. In recent years APRA has established a dedicated risk culture team.

The Hayne Royal Commission, the CBA Prudential Inquiry, and its review of self-assessments by funds has led to APRA setting high expectations on the importance of culture and leadership to attain the right culture.

APRA sees leading on culture as critically important on multiple fronts. It expects culture to be a constant presence, high on funds’ agendas and getting more attention. Culture as a driver – not as just a risk indicator, and not just in how the funds’ risk management framework assesses, measures and improves its risk culture.

APRA expects funds to recognise the fundamental that good culture feeds into better member outcomes.

Critical areas of improvement

APRA’s views are becoming more pronounced over time as it sees the issue as increasingly important.

Expect the culture elements of Superannuation SPS 220 on Risk Management to move towards the stronger CPS 220 currently imposed on banks and insurers.

Post COVID-19, improving culture to improve member outcomes, plus reducing risk at any fund and systemically across the industry, will emerge as a critical area of improvement in APRA’s eyes. Improving culture is interrelated with the more tangible implementation of SPS 515 member outcomes assessments.

A roadmap for effecting culture change

To change culture, leaders must first change the behaviour of their people.

Superannuation funds’ board and management need to truly “get it” – to truly understand and believe the power of culture in improving their funds and that this flows through to better member outcomes as well as better risk management. APRA believes this and can see if fund leaders believe the mantra or not – through their discussions and seeing fund actions.

The journey towards a stronger culture must include the following processes:

  • listen and understand APRA’s position and its building emphasis on culture
  • understand your own fund’s position – where does it sit on the culture maturity path currently? Where to target?  Where and how can outcomes be improved through culture?
  • as an example, a super fund could review its leadership’s actions on the Early Release Scheme from a culture perspective
  • determine how best to lead culture change – framework, roles, responsibilities and accountabilities, measurement, and monitoring
  • determine objective measures of success and test them as programs are implemented
  • commit to the journey—improving culture and leading that positive change—before APRA calls out your limitations.

The result will be a more resilient, sustainable, better performing super fund for members and staff in a fast-changing world.