Corporate culture in commercial banks
Theoretical justification of the applicability and moderating potential of the corporate culture of compliance. Specific features and importance of corporate culture in commercial banks. Formation of the corporate culture of compliance in Russia.
| Рубрика | Менеджмент и трудовые отношения |
| Вид | дипломная работа |
| Язык | английский |
| Дата добавления | 01.07.2017 |
| Размер файла | 755,7 K |
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3.1 Conceptual understanding of the compliance function
As it was identified during the theoretical analysis of the concept of compliance culture, one needs to work on the level of informal internal governance in order to achieve the instillation of the culture of compliance into the mindset of all of the employees. Thus, the understanding of the compliance as a function shared by the employees of the bank can act as an indicator of the cultural adaptation of compliance.
The entry-level employees interviewed during the research were working in quite different departments of the banks and, thus, had to execute different functions. Some of the respondents reported direct communication with compliance department on the matter of their working duties [Appendix 8, 9]; others were involved in the operations that could not directly inflict any compliance-related damage [Appendix 10] and, hence, interacted with the compliance function only on the general terms. Regardless their particular set of duties, all the respondents defined compliance as a department “controlling the banks' operations and ensuring policy-compliant behavior of its workers” [Appendix 10]. Some of them mentioned the alignment of the banks' operations with the norms and laws of the Russian Federation as the main goal of the compliance department [Appendix 8, 10]. This signifies the fact that all the workers, regardless their position or sphere of functionality, are familiar with the notion of compliance and are aware of the aims of the compliance department.
Nevertheless, the actual subjective perceptions of the employees concerning the compliance function can shed a light on the instillation of compliance values into the organizational mindsets. As for the employees of Sberbank and Alfa-Bank, when asked about the values of compliance and its importance for the organization, they seem to act quite unengaged or even aggressive regarding the compliance initiatives. One of the respondents revealed that he did not attend any non-obligatory trainings organized by the compliance department or any other departments on the matter of compliance due to the fact that he considered them “somewhat unrelated to the job and a bit unimportant” [Appendix 8]. This signifies that, apart from the direct and immediate functionality of the compliance department, Sberbank's junior employees do not seem to be well-engaged or well-informed of the potential value compliance gives to the organization.
In Alfa-Bank, the workers of the DSA department - department that is responsible for direct sales to corporate clients and, thus, operates on the level of direct jurisdiction of the compliance function - seem to disregard compliance as the actual source of financial and legal stability. One worker identified that, due to the formal, usually inconvenient requirements of compliance, some workers of her department lost their jobs as they tried to meet the planned numbers of the to-be-served clients [Appendix 9]. She was also uninformed of the values and principles of the culture of compliance. This, in turn, identifies appearance of a rather hazardous conflict of interest between the compliance department and the sales staff - an indicator of the absence of the compliance culture.
Although all the workers of Sberbank and Alfa-Bank were well-aware of the formal policies inflicted by the compliance department, such as, for instance, the Code of Business Conduct and the AML-policies, they were not informed of the values shared by the staff of the banks that might support compliance.
On the contrary, all the interviewed employee of Raiffeisen Bank seem to be aware of the informal side of compliance. As such, one worker identified that he supports the initiative of the bank “to personify the bank's policies” as it might bring value to the clients [Appendix 10]. All the workers were also familiar with the 5 values of the business conduct cultivated in the bank, although almost none of the respondents seemed to identify the role of such values in supporting the compliance function, The values identified by the respondents included: “honesty”, “transparency”, “objectivity”, “willingness of verification” and some sort of “whistleblowing” (willingness to report) [Appendix 10]. Evidently, all the named values correlate with the principles of compliance culture cultivation. As such, “transparency” and “willingness of verification” are aimed at ensuring the disclosure of information concerning daily operations by the workers. “Objectivity” and “honesty” support the absence of secret transactions and, even more importantly, “whistleblowing” or “willingness to report” ensures that all the employees perceive the act of whistleblowing as somewhat appropriate and desirable from the perspective of the bank's management.
Doubtlessly, the fact of the common familiarity with these values proclaiming compliant behavior is indicative of the successful attempts of the banks to instill the compliance culture into the workers' mindsets. Even more importantly, almost all of the respondents from Raiffeisen Bank reported their understanding of the applicability of such values in terms of their daily operations. The employees stated that they were subjected to the instillation of the enumerated values on different occasions mostly associated with the HR function. Among such were the on-boarding or the welcome event for the new comers and the meetings with managers.
The fact that the employees of the Raiffeisen Bank did not connect the instillation of enumerated values immediately to the compliance department is indicative of the presence of multiple sources of compliance culture transmission which is, according to the theoretical implications of the concept, quite efficient in terms of the adaptation of its perspectives.
The initial analysis of the employees' subjective perceptions of the compliance function signifies the success of the Raiffeisen Bank management in terms of cultivation of the compliance culture. On the contrary, the entry-level workers of Alfa-Bank and Sberbank appear somewhat unengaged in the process of compliance governance. This disengagement in turn leads to the emergence of the clear conflict of interest between the compliance department and the sales staff.
Regardless of the initial findings, it is worthwhile to investigate the actual compliance-related initiatives in order to find out if the relative unsuccessfulness in the process of the compliance culture cultivation in Sberbank and Alfa-Bank is justified by the misconnection of the management and the entry-level workers or the general absence of relevant procedures.
3.2 Analytical overview of the compliance-related initiatives
All of the initiatives are to be distributed among 2 categories: the events and practices of the formal internal governance and those of the informal internal governance. As it was identified in the theoretical analysis of the matter of culture of compliance, events and procedures attributed to the group of informal governance constitute the actual effect on the latent mechanisms of employee behavior and, thus, represent the only mechanism of potential influence of the compliance department on the cultural component of the organization. Despite this condition, formal mechanisms of governance are to be analyzed as well due to the fact that, in terms of the present paper, it is crucial to demarcate the most effective mechanisms of instillation of compliant behavior. Even if such mechanisms are not connected with the cultivation of the culture of compliance. It also should be mentioned that
3.2.1 Compliance initiatives of Raiffeisen Bank
Table 2
Compliance-related initiatives of Raiffeisen Bank
|
Formal Governance mechanisms |
Informal Governance mechanisms |
|
|
Obligatory tests and educational programs |
“Onboarding” events |
|
|
|
Personal assessments with immediate supervisors |
|
|
“Performance management” system |
||
|
Yearly specified events for linear managers (similar to onboardings) |
As can be seen, in Raiffeisen Bank the majority of initiatives that act as transmitters of compliance-related information are attributed to the informal type of governance.
· Obligatory initiatives
The formal type of governance is represented by regular obligatory tests and educational programs that can be found in the online platform of the bank - Intranet. As mentioned previously, these tests can be found in virtually every bank operating in Russia due to the fact that most of such procedures are supervised directly by the Central Bank of Russia. One of the employees mentioned that the compliance department contacted him on the matter of completion of the tests as the bank was to be “subjected to the Central Bank's inspection.” [Appendix 10] The only distinctive feature of such tests in Raiffeisen Bank is the fact that the compliance department does not impose any negative sanctions in the event of non-completion of the tests. This might be indicative of the fact that the bank's management relies on the self-responsibility of its employees, which is one of the elements of compliance culture.
· Onboarding procedures
The onboarding itself is dedicated to the process of the initiation of new coming employees and their informing on the matter of general business processes of banking and the key standards and norms of employee behavior. Onboardings ore common in all sorts of organizations and typically include lectures and speeches given by top managers of different departments of the company.
The most distinctive feature of onboardings in Raiffeisen Bank is the incorporation of “games” aiming at the identification and acquiring of the values postulated by the bank. All of the interviewed employees mentioned these games as the main source of knowledge on the topic of values and perspective spread across the company [Appendix 10]. During such games, newcomers are divided into several groups and informed of the 5 values of behaviour (as mentioned previously, they include “honesty”, “transparency”, etc.). The values are distributed among the groups - one for each team - and the group members have to present some past events of their lives where they had to act accordingly with the value. For instance, one could come up with a situation where he had the chance to tell the truth about a controversial event and used it. The employees themselves share the opinion that the incorporation of such unconventional method of education helped them to grasp the idea of applicability of the enumerated values in terms of their daily operations.
Taking into consideration the fact that all of the respondents managed to identify most of the values signifies that this method of culture instillation has the potential to cultivate the compliance culture.
· Personal assessments with supervisors
Prior to the analysis of this practice it should be mentioned that the only employees subjected to personal assessments are the interns of the EVOLVe program [Appendix 10]. The program itself can be considered as one of the most effective mechanisms of the corporate culture modulation as the main goal of the program is to form a pool of high-potential employees and employ them as the future management of the bank. The interns have a choice of 28 different departments and are subjected to personal assessments during the process of selection as well as the quarterly supervisions during the first year of their employment.
The interns are subjected to personal assessments with their tutors - usually, immediate supervisors - and HR specialists. During these assessments they are being informed on the matter of their competence in terms of formal behavior on 5 different scales including: “openness”, “communicative skills and conflict resolution”, “adaptiveness to changes”, “leadership” and “teamwork”. The procedure goes as follows: on the last stage of the selective process, all the to-be interns are assessed on the basis of these 5 dimensions by the HR specialists. An employee can have either “green”, “yellow” or “red” indications on some of the enumerated scales. If the intern gets a red or a yellow indication, he has to attend the meeting with his supervisor where they are to speak on the matter of these particular competences and their importance in terms of the employee behavior [Appendix 10]. Finally, each intern receives a custom yearly schedule of the trainings he or she has to attend in order to improve their skills in the least developed directions or “the area of growth” as it is called in Raiffeisen Bank [Appendix 10].
Evidently, such scales as “openness” and “conflict resolution” correlate with the values of compliant behavior attributed to the culture of compliance. Openness, for instance, stands for the willingness of an employee to share his or her opinion on the matter of formal operations and procedures adapted in the bank. Thus, an “open” employee would more likely choose whistleblowing over secrecy.
Additionally, the fact that these compliance-related cultural initiatives are sourcing from the immediate supervisors rather than the compliance department itself, contributes to the effectiveness of the compliance culture cultivation. The theoretical overview identified that most of the behavioral gestalts of the employees had been instilled via the examples of their supervisors (Liu, 2016). Thus, the fact that managers act as the direct transmitters of the enumerated values ensures the fact that interns attribute them to the immediate sphere of their working duties.
· Performance management system
The performance management system stands for an online platform designed for all of the employees of Raiffeisen Bank. Each year an employee sets goals for the upcoming years through this platform on 3 categories: career development, business goals and personal development [Appendix 10]. Business goals are the large-scale longitude projects an employee has to close during this year. Career development section demarcates the position an employee wants to achieve. Most importantly, the section of personal development accounts for the desirable set of “soft” skills that are correlated with the competences identified previously (“openness”, “communicative skills”, etc.). This section is communicated upon with supervisors and HR specialists and, thus, represents the desirable “image” of the employee an organization wants to cultivate.
In accordance with the elements of the corporate culture, this platform allows the bank's management to influence the component of “people” and, hence, implement the standard of the average employee as of compliant and open for the policies. The overall appearance of this platform as somewhat common and routine contributes to its potential to influence the employees' behavior.
· Yearly meetings for linear managers
One of the respondents identified that he has taken a part in the organization of the annual event for linear managers which is aimed at the identification and discussion of the goals of Raiffeisen Bank and its most innovative products [Appendix 10]. However, a part of this meeting represented the dissemination of the bank's values built by the same exact scheme as the “games” organized for the interns during their onboarding. Similarly, managers were divided into groups and had to present a situation where they acted according to any of the 5 values: “honesty”, “transparency”, “objectivity”, “willingness of verification” and “whistleblowing”.
This event is evident of the willingness of the bank's management to instill the values of compliance and integrity into the mindsets of the organization on all the possible levels - both junior and managerial positions. Unfortunately, there was no source of data that could make the process of identification of the actual value this event brought to the bank possible.
Evidently, Raiffeisen Bank organizes lots of events and practices attributed to the informal governance of compliance and these initiatives appear to be quite fertile as all of the interviewed employees seem do have grasped the essence of compliance-related values.
3.2.2 Compliance initiatives of UniCredit Bank
Table 3
Compliance-related initiatives of UniCredit Bank
|
Formal Governance mechanisms |
Informal Governance mechanisms |
|
|
Educative mailing on the matter of policies |
||
|
Obligatory tests and trainings |
The data on the matter of compliance-related initiatives that are predominant in UniCredit Bank was gathered in terms of the interview with the Head of Compliance department [Appendix 6]. This condition provided an opportunity to identify the most effective measures in terms of establishing of compliant behavior.
As can be easily seen, none of the practices identified by the manager did employ informal mechanisms of compliance governance, which is rah=ther controversial in terms of the bank's orientation on the cultivation of compliance culture.
· Educative mailing
The mechanism of educative mailing itself is a common way of information distribution in any sorts of companies. The most distinctive feature of the educative mailing in UniCredit is the fact that the materials mailed contain the information on the matter of the culture of compliance. Indeed, of the investigated companies, UniCredit is the only bank that did actually inform its employees about the culture of compliance. The mailed information included the definition of the culture of compliance, its value for the organization and even some cases that presumed the efficiency of this type of culture in terms of the conflict and crisis prevention. Unfortunately, the respondent did not approve the attachment of the documents to the present paper.
Surprisingly, the respondent herself stated that this particular instrument, as well as all the other non-obligatory initiatives organized by compliance department, did not have a substantial influence on the indicators of the non-compliant behavior and inadequate risk-taking [Appendix 6]. From the respondent's perspective, the cultivation of the culture of compliance in Russia is complicated and even inefficient due to the fact that the values and ideas postulated by this concept do not correlate with the features of the Russian national culture. Hence, the employees that carry this national code act with rejection towards the culture of compliance.
The respondent also stated that the main factor hindering the bank's ability to instill the culture of compliance into the mindset of the organization and ensure its adaptation is the mechanism of socialization. “Family and the immediate environment - these are the factors that truly matter…” in terms of the instillation of the behavioral mechanisms and values [Appendix 6].
Most likely, the fact that the bank's management does not actually believe in the appropriateness of the cultivation of the compliance culture and its ability to ensure and preserve compliant behavior led to the incorporations of the obligatory tests and trainings.
· Obligatory tests and trainings
As mentioned previously, obligatory tests and educational trainings are virtually the most common and widespread mechanisms of the communication between the compliance department and the staff of a bank. Nevertheless, it is not the informational filling or the format of the tests that make such practices noticeable in UniCredit Bank.
Surprisingly, the most distinctive feature of the obligatory compliance initiatives in UniCredit Bank is the fact that the bank imposes pecuniary fines on the employees that did not open the test or did not manage to complete it with the appropriate result. “In the most crucial cases, for instance, the retail banking… the bonus part of the employee's revenue depends on his or her progress in the completion of the tests.” [Appendix 6] As identified by the respondent herself, such factors as fear of the pecuniary and other observable negative sanctions constitutes the most effective mechanisms of compliant behavior assurance. Other negative sanctions include such practices as reprimands, negative comments in the service records, etc.
As evident, the bank's position concerning compliance initiatives postulates the indisputable effectiveness of the formal governance deploying negative sanctions and working on the level of fear. That disproves the theoretical assumption that banks with foreign capital tend to possess a much more distinctive potential to cultivate the culture of compliance. Nevertheless, it should be mentioned that, of all the banks under study, UniCredit bank has the highest index of the capital sufficiency and demonstrates overall economic success in terms of its operations in Russia [Appendix 6]. These conditions contribute to the controversy around the applicability and effectiveness of the culture of compliance in terms of functionality in the Russian banking sector.
3.2.3 Compliance initiatives of Sberbank of Russia
Table 4
Compliance-related initiatives of Sberbank
|
Formal Governance mechanisms |
Informal Governance mechanisms |
|
|
“Quality over numbers” |
“5+” assessment system |
|
|
Obligatory tests and educational mailing |
The information on the topic of compliance-related procedures adapted in Sberbank was gathered from the respondents working on the junior positions as well as the Head of the Internal Quality department. This multi-source approach allowed me, apart from the obvious analysis of the practices, to look into the opinions on the data instillation from both managerial and entry-level angles.
Among the initiatives predominant in Sberbank, obligatory tests and educational mailing are not to be analyzed due to the fact that they appear to have the same exact nature as the tests in UniCredit and Raiffeisen banks. These tests do not imply any negative sanctions in the event of non-completion (similarly to Raiffeisen). They contain information on the matter of general compliance requirements developed in the Russian banking sector and the controlling mechanisms of corrupted operations utilized by the Central Bank.
· “Quality over numbers”
According to the interviewed Head of the Internal Quality, Sberbank currently manages the initiative aiming at the alteration of the working principles of the ales department. Specifically, the main KPI of the number of sales is going to be replaced by the quality of sales [Appendix 7]. This measure is implemented in order to modulate the employees opinion towards their clients and, as a result, decrease the proportion of untrustworthy operations committed by the sales staff.
The process of this initiation is supported by the repetitive assessments of the sales records organized on the weekly basis [Appendix 7]. As a result, this procedure represents the formal governance of the compliance function and does not correlate with the cultivation of compliance culture. However, the idea of changing the point of concentration from the quantity of sales to other indicators is in line with the general sense of compliance culture; this would prevent sales employees from committing massive fraud in order to meet tough budgeted sales plans.
· 5+ assessment
The system of the “5+” assessment stands for the procedure of multisource evaluation of employees based on 3 main criteria: “client orientation”, “responsibility” and “personal development” [Appendix 7]. All the employees from non-managerial positions are to be assessed on the quarterly basis and the result of the assessment influences the bonus part of the worker's salary.
The procedure itself includes 3 main steps. On the first step, the employee has to evaluate himself on the enumerated criteria. Next, the immediate supervisor of the employee assesses him on the basis of the same scales. Finally, if the 2 evaluations demonstrate considerable differences, the employee has to attend a meeting with his supervisor and an HR specialist in order to discuss the employee's behavior and results and settle the final valuation. [Appendix 7]
The scale of “responsibility” presupposes such values as whistleblowing and amenability in case of reporting of the acquired knowledge about secrecy and illegal operations. Taking into consideration the fact that the actual source of governance is not directly related to the compliance department and employs supervisors, such initiative can be named as one with a great potential to modulate the employee's behavior and ensure their compliance. The utilization of the possible negative pecuniary sanctions should also work as a motivational factor.
Despite this, the analysis of the experience of entry-level employees identified that this particular initiative does not engage employees regardless the possible negative outcomes concerning their salary. One of the workers reported that neither himself, nor any of his colleagues have ever been subjected to the discussions with their supervisors [Appendix 8]. On the contrary, all of the workers of his department purposely evaluate themselves with the average score of C (3 out of 5) and get their annual bonus regardless [Appendix 8]. The inability to name the values of the bank and to identify them with the principles of compliance behavior contribute to the practical disengagement of the employees into the compliance-related initiatives.
Moreover, one of the respondents working on the junior position reported that during his 2-year working experience in Sberbank he did not attend a single non-obligatory training or any other compliance-related event [Appendix 8].
Evidently, there is a large discrepancy between the managerial perspective on the effectiveness of compliance initiative and the actual mindsets of the employees. Considering the fact that employees fail to attend any non-obligatory events and do not engage into the assessment procedures due to the absence of negative consequences, the perspective shared by the interviewed Head of Compliance department of UniCredit on the matter of pecuniary sanctions appears to be somewhat relevant.
3.2.4 Compliance initiatives of Alfa-Bank
Table 5
Compliance-related initiatives of Alfa-Bank
|
Formal Governance mechanisms |
Informal Governance mechanisms |
|
|
Monthly compliance meetings |
Daily planning meetings |
|
|
Obligatory tests and educational mailing |
Similarly to the previous descriptions, the element of obligatory tests and educational mailing is not to be analyzed due to the fact that all of the banks working in the Russian Federation are obliged by law to inform their employees on the topic of compliance and submit the tests results shown by all the workers.
· Monthly compliance meetings
Respondents working on the entry-level positions reported that there is a practice of obligatory monthly events dedicated to the problems of compliance [Appendix 9]. In terms of these meetings, a group is to be formed from the members of the different departments. The chosen attendants have the opportunity to get the compliance-related materials and listen to the speeches of compliance officers. They then have to distribute the acquired information and printed materials across the departments.
Although this particular initiative does not appear to be of a unique kind, it triggers the process of interpersonal communication on the matter of compliance among the colleagues. Despite the fact that the monthly meeting are obligatory and clearly have to be attributed to the formal means of internal governance, the process of communication in terms of every single department might contribute to the appearance of informal compliance-related communication channels. This, in turn, might cast a positive influence on the latent behavioral patterns of the workers as they perceive their immediate colleagues as the source of information on the matter of compliance.
· Daily planning meetings
As identified by the worker of the sales-related department (DSA), during the daily meetings dedicated to drawing the plans for every employee, there is a practice of incorporating case studies as of a routine to evaluate the employee's knowledge of the products and the basic principles of compliant behavior [Appendix 9]. The case studies stand for the brief descriptions of the situations where the employee has to decide whichever way it would be appropriate to act. Although the overwhelming majority of such case studies are aimed at identifying the knowledge of the products the sales staff have to sell, some of them include situations concerning the compliance requirements on the topic of communication with clients and colleagues [Appendix 9].
The usage of case studies as the means of the instillation of compliance culture can be of great effectiveness due to the fact that an employee has to attribute the formal requirements and norms to the true-to-life situation and act accordingly. Thus, the staff of the bank gets familiar with the possible areas of applicability of the values of compliance and forms an understanding of compliance in the business context. Thus, the compliance officers ensure that there would be no significant rejection of compliance values for the reasons of irrelevancy from the employees' perspective.
Although there was a number of identified initiatives that concerned the mechanisms of the informal internal compliance governance and, thus, supported the process of the compliance culture cultivation, the evident favoritism of the formal procedures implying financial sanctions [Appendix 6] and continuous inspections [Appendix 7] shared by the interviewed managers constitutes the large deal of controversy around the applicability and appropriateness of the culture of compliance. The interviewed managers, however, provided a number of insights on the matter of success of their banks and, specifically, the effectiveness of the compliance departments operating in their companies.
3.3 Organizational feature as the factors of compliance effectiveness
Despite the fact that the presence of the successful adaptation of the values of compliance culture can be observed in Raiffeisen Bank, an interview with the Head of the Compliance department of UniCredit Bank identified that there might well be some factors, other than the cultivation of compliance culture, that predicted success of international banks in the Russian banking sector.
According to the information given by the UniCredit's compliance official, the main difference between local Russian banks and those with the foreign capital is the organization of the compliance department on the global scale [Appendix 6]. The approximated organizational scheme of compliance departments of UniCredit and Raiffeisen banks can be seen in the figure 4:
Figure 4 Compliance function organization of the banks with foreign capital
As can be seen, the compliance function organization in banks with foreign capital has a number of levels varying by their governing power. As such, the global compliance of such banks, usually situated in its headquarters, supervises all the regional compliance departments. The regional compliance departments, in turn, comprise all the small local departments for the bank's subsidiaries operating in close areas. The resulting effect leads to the supervision of all the local compliance departments by one global function. This allows bank's subsidiaries in developing countries to get the access to the experience of the European institutions.
The respondent justified that, due to the backwardness of the institutional development of the Russian banking sector, local banks lack the ability of systematic risk assessment and, thus, are much more exposed to the possible license deprivation on the matter of risk-taking initiatives [Appendix 6]. In developed countries, the procedures of risk assessment are settled on the legal level, thus, all the banks are obliged to perform a number of operations preserving them from the capital insufficiency and unlawful operations.
As for the fact that the local subsidiaries of such banks are subjected to internal audit and inspections from the global compliance department, the standards of the business conduct by which they are measured are based on the European legal system which is much more strict than the Russian analog.
This type of formal regulations sourcing from the foreign compliance department, might well be the determinant of success of banks with foreign capital operating in the Russian banking sector. The inspections from global compliance departments incorporating tougher standards of operations give these banks the upper hand in comparison with local banks that have to build their compliance functions on the basis of the Russian banking legislation which is far less developed and detailed [Appendix 6].
3.4 Discussion and practical implications
The results of the study appear to be somewhat controversial due to the clear variation between the compliance management systems cultivated in the banks studies. It was identified that all the employees from junior positions, regardless their departments and the actual banks, share approximately the same understanding of the formal part of compliance, its importance in the economic context and its role in terms of the interaction with external regulators.
However, only some of the employees of Raiffeisen Bank demonstrated the understanding of the informal mechanisms of compliance governance; they managed to identify values constituting the culture of compliance and gave their subjective perspectives on the potential value of such culture and its applicability in terms of the daily routines and operations.
Employees of Sberbank and Alfa-Bank appeared either unengaged in the process of compliance culture cultivation or even aggressive towards compliance. Their understanding of compliance as of something irrelevant in the business context signifies the unsuccessful cultivation of the culture of compliance as, evidently, the conflict of interests between the workers (especially, the sales staff) and the compliance function has not been eliminated. These conditions do not contribute to the implications of the culture of compliance necessity as 3 out of 4 studied banks did not demonstrate any signs indicative of the appearance of the specific compliance cultural type. Despite this, all of these banks are extremely successful in terms of their operations in the Russian banking market.
Considering the compliance-related procedures adapted in the banks, only in Raiffeisen Bank one could identify consistent management of the informal internal governance crucial for the modulation of employees' mindsets. Such initiatives as performance management system, assessments with supervisors and compliance-oriented onboardings contribute dramatically to the bank's ability to instill the desirable values into the organizational culture. Additionally, the actual creation of the EVOLVe internship program and the consecutive formation of the Hi-Po pool of future leaders ensures the cultivation of compliance culture and its preservation in years to come.
As for the effectiveness of initiatives implying compliance culture formation, it should be mentioned that all of the procedures of informal governance and, most importantly, the implementation of the EVOLVe program, appear to be extremely expensive. Nevertheless, the management of Raiffeisen Bank and its supervising authorities from Austria decided in favor of such measures over the common formal methodology.
In comparison, the head compliance officers of both UniCredit Bank and Sberbank share the perspective that the commanding type of enforcement of compliant behavior and compliance education is most appropriate and effective in terms of the Russian cultural reality. Despite the fact that UniCredit bank organizes educational mailing on the matter of compliance culture, pecuniary fines continue to act as its most efficient mechanisms of the compliant behavior assurance.
This condition also works against the assumed substantial difference between local and international banks. The organizational peculiarities of the banks with foreign capital do indeed cast positive influence on the process of compliance culture cultivation, but not in the sense of leveling the flaws of the Russian national culture. The presence of the global compliance department preserves the banks from the perspective of being deprived of the banking licenses via the means of formal one-sided inspections, which are not compatible with the self-regulating model of the bank that could be achieved through the formation of compliance culture.
Finally, the identified differences in organizational factors that influence banks' abilities to tackle external regulation between local and foreign banks suggest that the foundational banks' success might well not be directly correlated with the type of corporate culture they manifest. Indeed, as long as all the interviewed managers stated that the role of compliance department grows more and more crucial, it is evident that the mechanisms of compliant behavior assurance do not necessarily correlate with the principles of compliance culture. Moreover, from the managerial perspective, the best solution for the elimination of non-compliant behavior and massive fraud is simply to “toughen up” the controllership of the operations.
All the identified trends lead to several conclusions:
1) Although some of the foundational banks are involved into the process of cultivation of the culture of compliance and are ready to invest substantial funds in order to facilitate this process, it cannot be named as one of the predictors of success in the Russian banking sector.
2) Compliance officers themselves seem to fail to believe into the employee's ability to undergo a cultural change and increase the level of self-regulation and personal integrity. This disbelieve might well act as a critically important factor hindering the ability of the banks to incorporate the principles of compliance culture in a holistic way.
3) The example of compliance initiatives at Sberbank demonstrates that the management of the Russian banks not only fails to engage the employees into the process of cultural transformation; it also grows disconnected from the entry-level employees and loses its ability to define the effectiveness of the initiatives it introduces. Thus, there is a necessity for the creation of a methodology that would make it possible to assess the effectiveness of each individual initiative in terms of their influence on the behavioral patterns of the employees.
These areas of potential growth have to be studied in terms of the future studies in order to define the exact effect that the culture of compliance casts on the behavior of employees and, most importantly, the financial results of the bank.
Although the present study does not account for any direct correlations between the usage of a managerial tool of compliance culture and the banks' success in terms of tackling of the external regulation, there is a number of practical implications for the Russian banks that do not possess the same amount of funds and economic value that the foundational banks do.
· Firstly, and most importantly, in order to ensure economic stability and cut the exposure to the external controllership, local banks have to modulate their methodology of the risk assessment. Although the incorporation of the compliance culture would have been the easier solution due to the fact that it engages each individual employee into the process of risk evaluation, the management of the banks has to at least alter their approach to formal procedures. As it was identified in terms of the study, the subjection of the banks with foreign to internal inspections performed by the global divisions of their compliance functions gives them an opportunity to utilize the European legal basis on the matter of risk evaluation. The Russian legislation does not possess the relevant methodology for such procedures and, thus, acts as a main factor for the local banks' vulnerability.
· In order to facilitate the process of the corporate culture of compliance cultivation, the managerial perspectives on the matter of the employees' ability for self-regulation and cultural change have to be modulated. The example of Raiffeisen Bank and its internship program is evident of the fact that Russian workers, especially young ones, willingly engage in the process of the cultural transformation of the whole organizations when given the appropriate practices and procedures. Hence, compliance officers have to reconsider and reevaluate the importance of informal governance in order to constitute the appropriate conditions for the formation of the culture of compliance.
· Finally, banks have to adapt a methodology for the evaluation of the compliance-related initiatives on the matter of their effectiveness in absolute terms. Although this paper contains the definition and analyses of some appropriate and evidently efficient practices of instillation of the culture of compliance, there would be a necessity for the creation of customized procedures aimed at the incorporation of compliance values. Thus, on condition that compliance officers would succeed in proposing a universal procedure for the evaluation of informal methods of governance, it would be possible not only to demarcate the most appropriate managerial tools for the cultural transformation, but also to justify their importance in order to acquire sufficient funds.
All the proposed actions are aimed at increasing the banks' potential to cultivate the culture of compliance. Despite the fact that the interviewed experts did not mentioned this concept among the “best practices” for the tackling of external regulative requirements, the theoretical analysis, as well as the positive example of Raiffeisen Bank, demonstrate that it is indeed possible to ensure compliant behavior of the employees without the deployment of severe formal inspections. This “soft” compliance assurance would have allowed the managers to simply eliminate the conflict of interests between the employees and the compliance function and, thus, decrease the level of stress and aggressiveness of the bank's staff which would in turn lead to overall better performance of the organization as a whole.
3.5 Study limitations
As mentioned previously, the most apparent flaw of the present study is the fact that it does not account for any observable correlations between the successful cultivation of the culture of compliance and the economic stability of the bank in terms of functioning in the Russian banking sector. The exploratory nature of the research, justified by the absence of any similar studies performed in Russia, presumes the overview of the practices of compliance culture cultivation and their evaluation from the perspective of the managers.
Thus, additional investigations are needed in order to establish the interdependence of the cultural aspects of the bank's compliance function and its performance indicators, such as, for instance, net income or capital sufficiency ratio. A possible methodology for such an investigation should deploy the procedures of evaluation of individual risk-taking patterns of the employees. Hence, it would be possible to compare the risk appetites of the bank that has successfully (at least, observably) cultivated the culture of compliance and those of the institution with the regular commanding approach to risk management and compliance assurance.
Another obvious drawback of the present study is connected with the fact that the study of four banks placed among the most successful financial institutions provided highly polarized opinions and perspectives on the appropriate compliance management principles. While it is evident that the management of Raiffeisen Bank adheres to the strategy of informal governance and cultivation of the culture of compliance, other studied banks postulate the principle of tough inspections, commanding controllership and pecuniary sanctions. Due to the fact that all the banks demonstrate consistent results in both financial and regulatory dimensions, it is impossible to define the predictors of success in the Russian banking sector on the basis of the present research.
The most obvious solution to this problem would be to simply broaden the study population and investigate compliance management systems of the banks from difference strategic groups [Appendix 3]. Thus, there would be a much greater potential to distinguish different approaches to instillation of the compliance culture as well as to establish the correlation between the features of compliance management and the bank's success in terms of the regulatory stability.
Summary
The conducted empirical study of the approaches to compliance management identified substantial differences between the perspectives shared by the banks. Evidently, the strategy of compliance culture cultivation taken by the management of Raiffeisen Bank turned out to be fertile as all the interviewed employees appeared to have grasped the essence of the concept and its applicability in the daily duties.
In comparison, compliance officers of Sberbank and UniCredit Bank reported that in their banks the main source of compliance initiatives is associated only with the formal governance. Obligatory procedures in these institutions imply either repetitive and constant nature or are connected to the employees' salaries. The approach postulated by those banks does not align with the basic assumptions of the culture of compliance and might even hinder the banks' ability to undergo a cultural change.
Nevertheless, the potential value of the culture of compliance demonstrated by Raiffeisen Bank signifies the potential of the commercial banks operating in Russia to incorporate informal methods of compliance governance and form a culture of compliance to ensure their economic stability in years to come. In order to do so, they have to:
· Deploy appropriate methods of compliance management (connected with the informal part of compliance)
· Invent and adapt a universal model of evaluation of the compliance initiatives effectiveness
· Alter the shared perspectives of the top-tier compliance officers
Conclusion
In terms of the present unsatisfying conditions of the Russian banking sector, both the financial institutions themselves and, most importantly, their clients are exposed to the possible danger of the license deprivation and, hence, the loss of the deposited funds for the reasons of non-compliant, corrupted operations. As for the fact that none of the experts suggests any certain procedure to evade such threats and ensure economic stability, the cultivation of the culture of compliance appeared to be an effective and theoretically supported solution for the management of risks sourcing from external regulations.
According to the conducted analysis, the formation of the corporate culture of compliance in the Russian banking sector has not yet reached the stage where it can substantially modulate the risks of license deprivations or any other regulatory sanctions. Evidently, that is to do with the perspectives shared by the compliance officers on the matter of employees' abilities to undergo a consistent cultural change and ensure their self-responsibility in terms of compliant behaviour. The example of Raiffeisen Bank and its successful realization of the strategy of cultural modulation in the present conditions of the Russian market, however, testifies in favor of the appropriateness of the informal approach to compliance governance and, hence, the applicability of the cultural framework of compliance management.
In order to cultivate the satisfying conditions for the formation of the corporate culture of compliance, it would be worthwhile to instil the understanding of the possible value of this approach to top-tier managers so that they decided to withdraw from the traditional mechanism of inspections and obligatory tests deployment and considered the positive effects of the elimination of the conflict of interest and penchant for corrupted operations in the first place. Accordingly, the degree of cultural awareness of compliance officers should be increased dramatically. Doubtlessly, the present research contributes to this continuous process and suggests a number of insights into the nature of compliance initiatives and procedures that could potentially alter the deeply settled gestalts of compliance managers and lead them to the reinvention of a radically new approach to risk management in the Russian banks.
List of references
1. Федеральный закон "О противодействии легализации (отмыванию) доходов, полученных преступным путем, и финансированию терроризма" от 07.08.2001 N 115-ФЗ (последняя редакция) [Electronic source]// ConsultantPlus. URL: http://www.consultant.ru/document/cons_doc_LAW_32834/ (request date: 05.03.2017).
2. Федеральный закон от 02.12.1990 N 395-1 (ред. от 03.07.2016) "О банках и банковской деятельности" (с изм. и доп., вступ. в силу с 01.01.2017) [Electronic source]// ConsultantPlus. URL: http://www.consultant.ru/document/cons_doc_LAW_5842/bf888ae559e9d1f239d6c71c8a16548013ff34c0/ (request date: 05.03.2017).
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