28 Nov Organisational Culture: A Strategic Imperative and Regulatory Touchstone

Culture as Strategic Asset – or Regulatory Risk

Organisational culture is often the elephant in the room: felt by many, but difficult to name and even harder to address. A well-aligned culture can simultaneously drive business growth, compliance and performance. When misaligned, it can foster misconduct, business or regulatory failure, and the erosion of trust and reputation.

Strong organisational culture enhances performance, innovation and stakeholder confidence. Numerous studies have highlighted not only its importance but also the gap between a firm’s stated values and the lived behaviour of its people. For financial services firms, the message from regulators in Guernsey and elsewhere is clear: culture matters, and weak or poor culture undermines compliance and does little to prevent misconduct.

Regulatory controls may exist on paper, but without cultural reinforcement they can be bypassed. Misaligned incentive structures, siloed or under-powered compliance functions, or leadership that signals “results at any cost” all create fertile ground for misconduct. While the focus of this article is regulatory risk within financial services, the issues are equally relevant to non-financial businesses.

Culture is More than Words

Many leaders focus on the messaging of culture: refreshed values, posters, intranet campaigns, emojis, empathy workshops and away days. While usually well-intentioned, symbolic efforts that are not accompanied by a shift in leadership behaviour do not shift culture; they often have the opposite effect. Employees disengage when they see a gap between what is said and how decisions are made.

Research shows that employee trust, engagement and retention do not improve unless the espoused culture is consistently lived. That means culture must show up in the mundane routines of organisational life:

• how decisions are made and documented
• how meetings are run and who is heard
• how feedback is given, received and acted upon
• how risk, compliance and audit input is handled

The levers that actually change culture are: Power (who decides and who is heard), Risk (what leaders are willing to lose to live their values), and Modelling (the behaviours leaders consistently demonstrate). The reality is that culture is a core risk dimension. Effective alignment across HR, Risk, Compliance and Audit is essential. Firms must measure, integrate and govern culture proactively to improve decision-making and prevent systemic failure.

Judgement, Culture and Decision-Making

A firm’s culture is expressed most clearly in the judgement exercised by its people, particularly those in leadership and control functions. As Andrew Likierman observes in Judgement at Work – Making Better Choices, organisational failures rarely stem from a lack of intelligence or technical skill. They more often arise from systematically poor judgement, shaped by blind spots, weak challenge, over-confidence and misaligned incentives.

Likierman identifies six components of sound judgement: learning, trust, experience, detachment, options and delivery. Each has a cultural analogue inside financial services firms:

• Learning – requires a culture where bad news is surfaced early, audit findings and risk reviews are not ignored, and data is not sanitised on its way to the Board.
• Trust – depends on psychological safety; people must be able to question clients, controls or decisions—including those of senior leaders—without fearing repercussions.
• Experience – only improves judgement when cultures allow reflection and humility rather than hero narratives that edit out past mistakes.
• Detachment – avoiding undue influence or bias is only possible where challenge is expected and not treated as disloyalty.
• Options – increase when diverse perspectives are welcomed, not marginalised, in decision-making forums.
• Delivery – turning judgement into action depends on governance that supports escalation, follow-through and the appropriate resourcing of control functions.

Likierman’s research shows that competent leaders make worse decisions when they operate in cultures that reward short-term wins, suppress dissent or overload staff to the point of constant firefighting. Judgement is therefore not simply an individual trait; it is a cultural outcome.

For regulated firms, this aligns directly with supervisory expectations. Many enforcement actions—on AML failings, mis-selling, outsourcing weaknesses or governance breakdown—reflect not technical gaps but cultural ones: insufficient detachment from commercial pressure, a failure to explore options beyond the least resistant path, and delivery failures where known risks were not addressed decisively. Regulators are increasingly viewing these not as isolated missteps but indicators of a problematic culture.

Boards and senior managers should therefore treat judgement quality as a governance metric. Questions to ask include:

• Do decision papers show alternative options and reasoning, or only a single recommended path?
• Is dissent acknowledged in minutes, or edited out?
• Do control functions have genuine independence and influence?
• Are risk, conduct and customer outcomes clearly considered in Board and committee decisions?
• Do leaders demonstrate detachment from commercial pressure in high-stakes calls?

Integrating this framework into Board and ExCo routines helps detect cultural drift early. It also operationalises tone from the top, making culture visible and assessable rather than rhetorical.

The Regulator’s Cultural Perspective

Society’s understanding that culture drives behaviour is not new. What is more recent is the increased willingness of regulators to link firm and individual failings directly to broader cultural weaknesses in enforcement actions.

In Guernsey, William Mason, Director General of the Guernsey Financial Services Commission (GFSC), has for many years drawn attention to ethics and governance, even before the term culture became explicitly used in regulatory language. Over the last decade, the undercurrent in GFSC Public Statements has been consistent: weak culture is often a root cause of serious regulatory breaches, particularly where financial or shareholder priorities override governance responsibilities.

In the UK, the Financial Conduct Authority (FCA) has clearly signalled its interest in culture, including through the Consumer Duty, which requires firms to prioritise good customer outcomes in design, delivery and evaluation. The FCA’s Chief Operating Officer, Emily Shepperd, has stated that “we do care about culture as it informs conduct and that is what we regulate”. She has also highlighted the power of language in shaping culture—terms introduced by leadership quickly become embedded—and emphasised that tone from the top can either accelerate or impede cultural change.

Both regulators have also stressed the need for environments in which employees from diverse backgrounds feel safe to raise concerns and challenge orthodoxy. Psychological safety at Board and employee level is now recognised as a core governance issue.

Regulatory Evolution: Culture as Governance

The FCA (and other regulators) now regards culture as a key supervisory issue. In particular, the FCA’s Consumer Duty highlights this through its focus on how a firm’s culture supports or undermines good outcomes, including:

• how products and services are designed and tested
• how distribution, advice and servicing models function in practice
• how complaints, remediation and redress are handled
• how management information (MI) provides Board-level insight into outcomes

Increasingly, the FCA has been looking at wider cultural health indicators such as trust, diversity and patterns of misconduct as proxies for firm-level risk.

While the GFSC has been less explicit in its public articulation on culture, its enforcement work and messaging bring us to a similar position. Across cases, it is apparent that the Commission is scrutinising not only what has gone wrong but why—and how Board behaviours, resourcing decisions, escalation paths and oversight demonstrate (or fail to demonstrate) an appropriate culture.

Cultural Failings Observed by the GFSC

GFSC Public Statements highlight several recurring cultural themes:

• Weak Board oversight – Boards that are under-resourced, lack local representation or experience high turnover struggle to exercise effective challenge. In some cases, parent companies delayed or blocked director appointments, leaving firms exposed.
• Cultural misalignment with parent entities – Private equity or majority shareholders have, at times, prioritised cost-cutting and financial performance over compliance. This can result in aggressive staff reductions, delays in recruiting key roles (e.g. Compliance, MLRO, Internal Audit), consistent under-resourcing, or in the worst cases, all three.
• Inadequate resourcing of control functions – Compliance backlogs, deficient AML frameworks and weak oversight of outsourced arrangements are common. Firms have sometimes continued operating despite known gaps in customer due diligence, transaction monitoring and beneficial ownership checks.
• Failure to act on known risks – Some licensees have been subject to remediation plans following thematic or independent reviews but failed to implement improvements effectively or within agreed timeframes, indicating a lack of sustained commitment to change.
• Sanitisation of bad news – In certain cases, firms provided misleading or incomplete information to the Commission or to their own Boards. This behaviour breaches trust and points to a deeper cultural flaw: the suppression or repackaging of adverse information or, put another way, a lack of integrity.

Common across these examples is a failure to embed a culture of transparency, accountability and risk awareness. Where staff do not feel safe to speak up, where Board oversight is hollow, and where financial priorities routinely outweigh compliance, regulatory failings become inevitable.

Real-World Case Studies: When Culture Drives Failure

1. Post Office Horizon – contempt, secrecy and incomplete curiosity

The UK Post Office Horizon scandal is now widely recognised as one of the country’s worst miscarriages of justice, with over 900 sub-postmasters wrongly prosecuted between the late 1990s and 2015. A public inquiry has highlighted not only technical flaws in the Horizon IT system, but a deeper malignant culture within the organisation.

Government counsel described Post Office leadership as weak and arrogant, with a corporate attitude of contempt, secrecy and indifference to the truth. Executives repeatedly dismissed or minimised credible concerns from branch operators, closed ranks around the system, and provided incomplete or misleading information to courts, ministers and the public.

Viewed through a cultural lens, the scandal reflects several judgement failures: a lack of curiosity about anomalies, intolerance of dissent, and a preference for protecting institutional reputation over truth and fairness. It is a powerful example of how an organisation can have formal controls and legal powers, yet still fail catastrophically where its culture punishes those who raise concerns.

2. Boeing and Alaska Airlines Flight 1282 – throughput over safety

On 5 January 2024, an Alaska Airlines Boeing 737-9 MAX suffered the in-flight separation of a mid-exit door plug, causing explosive decompression and significant structural damage. Fortunately, the aircraft landed safely. Subsequent investigation by the US National Transportation Safety Board concluded that systemic failures in Boeing’s manufacturing processes and inadequate oversight contributed to the incident: bolts required to secure the door plug had been removed during rework and never reinstalled, and the work was undocumented.

Employees described being rushed and under pressure, with weaknesses in quality assurance and documentation. Regulators restricted 737 MAX production until Boeing demonstrated more robust safety controls. The incident adds to a pattern, following earlier 737 MAX crashes, in which production pressure and commercial timelines have been seen to compete with an authentic safety culture. It illustrates how a misaligned culture—prioritising throughput and schedule—can undermine sophisticated engineering and formal safety systems.

3. ANZ – systemic non-financial risk and compliance culture weaknesses

In September 2025, the Australian Securities and Investments Commission (ASIC) announced a record A$240 million penalty against ANZ for widespread misconduct across both institutional and retail businesses. The misconduct included misleading practices in a A$14 billion government bond transaction, failures to respond to hundreds of hardship notices, misleading statements on savings interest rates and charging fees to deceased customers, affecting tens of thousands of customers.

ASIC characterised the problems as systemic failures in non-financial risk management and compliance culture, not isolated technical errors. The regulator and subsequent commentary have pointed to a good news culture where bad news was not escalated, weak challenge to profitable business lines, and inadequate accountability for repeated failings. ANZ’s new leadership has acknowledged the need for cultural change, including simplification, clearer accountability and stronger risk oversight—illustrating that remediation is as much about culture and judgement as it is about processes and systems.

4. Cost-cutting, Board instability and AML failings

In July 2024, the Guernsey Financial Services Commission imposed a £455,000 financial penalty on Equiom (Guernsey) Limited for serious AML/CTF deficiencies and failures to meet the minimum criteria for licensing. The Commission found that the Board had been ineffective over a sustained period, that the firm lacked sufficient staff with appropriate skills and experience, and that key compliance roles were under-resourced.

The public statement notes, among other issues, the impact of ownership changes and cost-cutting decisions on compliance capacity, delays in addressing known deficiencies, and weaknesses in oversight of higher-risk activity. These are not solely technical AML failings; they are cultural choices about resourcing, governance and the weight afforded to compliance relative to financial objectives. For Guernsey Boards, the case underscores the risk of group or private-equity imperatives overriding local regulatory expectations and the need for local Boards to assert their responsibilities robustly.

5. Channel Islands enforcement trends – culture as the through-line

Recent analyses of GFSC public statements show common themes across multiple enforcement actions: Boards not giving sufficient priority to compliance, failure to grasp the seriousness of issues until very late, under-resourced control functions, and a tendency to sanitise bad news before it reaches the Board or the regulator.

These patterns echo concerns about judgement: where information is filtered, dissent is discouraged, and financial considerations dominate, the conditions for good judgement are absent. For directors and senior managers in Guernsey, the collective message from recent cases is that culture is no longer a soft concept; it is increasingly central to supervisory assessments and enforcement outcomes, and it is observable in very practical choices about hiring, escalation, challenge and follow-through.

Early Warning Signs: Cultural Red Flags

Boards and senior managers should be alert to early indicators of cultural deterioration, including:

• Leadership normalising rule-bending or working around policies
• Weak, marginalised or frequently over-ruled compliance and risk functions
• High turnover in governance or control roles (or high organisational turnover generally)
• Toleration of ongoing non-financial misconduct
• Staff reluctance to raise concerns; low psychological safety
• Misalignment between stated purpose and daily operations
• Incentives and remuneration that reward profit without regard to risk or conduct
• Parent or group culture overriding local regulatory expectations

These markers are all, in Likierman’s language, signals of impaired judgement conditions.

Measuring, Managing and Sustaining Culture

To govern culture effectively, organisations should:

• Define values as actionable principles, not slogans—specify what they look like in decisions, meetings and customer interactions.
• Establish metrics – e.g. misconduct reporting trends, employee sentiment surveys, inclusion and diversity data, quality of KYC and onboarding, timeliness of audit issue closure.
• Institutionalise Board oversight of culture – embed cultural KPIs in regular MI packs and committee reporting.
• Empower control functions – ensure Compliance, Risk and Internal Audit have sufficient independence, direct Board access and resourcing.
• Link incentives to how performance is achieved – include conduct, customer and risk metrics (not just financial) in variable pay, and be prepared to sanction stars who breach values.
• Use diverse voices to counter groupthink – across Board composition, leadership teams and working groups.
• Treat misconduct as a cultural indicator, not an isolated failing.

Practical questions for Boards include:

• How are meetings run? Is challenge invited and recorded? Do minutes reflect debate, or only final decisions?
• How is feedback given? Can people provide upward feedback, including to Board members?
• How transparent are decision-making processes, and is there clear governance around who decides what?
• Is there consistent follow-through on issues, with visible action and closure?

Trajectory of Cultural Change: Strategic Renewal

Sustainable cultural transformation requires:

• Board accountability for cultural health and clear allocation of responsibilities under local regulatory regimes.
• Leaders who live the values in visible, repeated ways.
• Integration of values into hiring, promotion and succession planning.
• Regular reporting and review of cultural metrics, including psychological safety and judgement quality.
• Autonomous, respected control functions.
• Performance incentives tied to integrity and outcomes, including risk and customer metrics.
• Transparency in incident response and remediation, not just in the final statement.
• Diverse governance structures that encourage challenge and mitigate groupthink.
• Sustained leadership messaging, backed by consistent behaviour—not episodic campaigns.

Culture as a Differential Advantage

Firms whose culture is anchored in integrity and sound judgement benefit from:

• Higher employee trust and retention
• Stronger consumer and regulator confidence
• Greater resilience in the face of disruption and change
• Fewer regulatory incidents and more opportunity to correct course before enforcement

From the Horizon scandal to Equiom’s culture gaps, the message is unmistakable: culture is governance in action, and regulators are treating it as such. Boards must not only articulate the culture they want but also ensure it is lived, measured and managed.

How ConsultGC Can Help

ConsultGC provides independent, director-led advisory support focused on how Boards govern culture, conduct and regulatory risk.

ConsultGC helps Boards discharge their responsibilities for organisational culture and governance. We:

• conduct independent reviews of governance and decision-making frameworks, and of how culture is set, overseen and evidenced at Board and committee level
• evaluate Board effectiveness and challenge culture
• clarify accountability and oversight for culture
• design practical governance MI for culture and conduct
• run Board and ExCo workshops on culture, judgement and decision-making
• support Boards during regulatory scrutiny and remediation

Our services complement internal checks and provide objective assurance over decision-making, challenge, information flows and accountability. Our work helps Boards identify and address cultural weaknesses and drift (for example where commercial pressures override risk and compliance), and strengthens the link between stated values, incentives and Board practice—reducing regulatory, conduct and reputational risk. The result is clearer accountability, faster issue resolution, better customer outcomes—and evidence your leaders can show regulators and stakeholders that culture is being treated as a strategic asset, not a slogan.