Creating a culture that benefits customersOld Mutual Group responded to setbacks by implementing customer-centric values.
When Old Mutual Group reached a cultural crossroads several years ago, the organisation's leaders decided that strengthening customer-centred values at the heart of the business was the key to bouncing back from significant business setbacks.
The global financial crisis of 2007 through 2009 had buffeted the international investment, savings, insurance, and banking group along with many other financial services organisations. At the same time, Old Mutual, a public company incorporated in England and Wales, experienced a crisis of its own making.
Following an international expansion into the US (on-shore and off-shore), exposure to US credit through variable annuities caused harm to the company (other insurers exposed to US credit issues during this period also experienced difficulties). Losses also were suffered when an investment portfolio did not support guarantee riders purchased by customers on variable annuities by subsidiary Old Mutual Bermuda.
As a result, Old Mutual's share price dropped on the London Stock Exchange from £1.69 ($3.33) in early January 2008 to £0.39 ($0.66) in late October of that year. The US on-shore and Bermuda businesses both eventually were sold, but Old Mutual's leaders also recognised cultural changes that could be made to address the challenges it had just faced.
Under new executive leadership, Old Mutual embarked on a path towards improving its focus on customers. New governance models were created to centralise controls, and it quickly became clear that refining Old Mutual's values and culture would play a critical role in this transformation.
"It's got to be driven from the top," said Sue Kean, Old Mutual's chief risk officer. "The CEO has got to want to live the values, and there needs to be some sort of measurement."
Upholding core values
Old Mutual's efforts to shift its company's culture are included as a case study in the UK Financial Reporting Council report Corporate Culture and the Role of Boards. The Chartered Institute of Management Accountants was a partner in preparing the report, which states that in their oversight role, boards should make sure their organisations:
- Connect purpose and strategy to culture.
- Align values and incentives to support the organisation's purpose.
- Give careful thought to how culture is assessed and reported on.
Leadership with Old Mutual took all these steps after Julian Roberts became CEO in 2008. Previously, the organisation operated under a decentralised system of governance, with different practices and priorities for individual business units. But under a new group operating model rolled out in 2010, the organisation moved to a centralised system of governance. Throughout the organisation, it would be important to uphold four core values — integrity, respect, accountability, and pushing beyond borders — to align with the customer-focused objectives.
Of course, customer service had always been important at Old Mutual, as it is for all successful financial services organisations. But Old Mutual stated its goal to improve the customer experience across all markets as a priority. It strived to develop and use meaningful customer information to enable better service to customers, and KPIs were implemented to measure progress towards the organisation's goals. Old Mutual also sought to expand and improve its products and their distribution to better meet customer needs.
After consulting the input of the top 100 leaders in the organisation from around the world, Old Mutual determined that six behaviours should guide personnel in their pursuit of that customer-first strategy. The behaviours spelt out the acronym "ACTNOW":
- Aim high and take your team with you.
- Customer first — they're the reason we're here.
- Treat the business like it's our own.
- Need to listen carefully and talk honestly.
- Own our decisions, decide, and deliver.
- Win together and help others succeed.
Employees were held accountable to these behaviours in their performance appraisals, and leaders received feedback about their teams' progress in displaying these behaviours. Using an employee survey, the organisation received feedback on its progress in implementing the culture.
A few years later, Kean began seeking feedback from senior risk and audit personnel in a questionnaire that sought to determine whether the organisation had a good risk control culture. The survey solicited information on whether employees were sticking to structured decision-making processes and if the right behaviours were being incentivised (see the sidebar, "How to Incentivise Corporate Culture"). The survey measured whether information was being shared, whether the organisation was continuously evolving, and whether governance over big risks was appropriate.
In 2014, the organisation hired Gail Klintworth to a newly created role as group customer director to oversee that intense focus on the customer. She brought a fresh perspective from outside the company that helped the middle-level employees get their people aligned with the customer focus, Kean said.
An example of an area where the customer focus paid dividends is product offerings. In South Africa, for example, Old Mutual Finance introduced a lending product for debt consolidation called "My Money Plan." The product was designed to educate customers and help them take a holistic look at their finances during a 45-minute consultation, leading them to ask how Old Mutual could help them achieve their financial goals.
In the past, Kean said, back-office personnel, particularly in the main office, had found it difficult to relate to customers because they didn't interact with them. Instead, the back-office people considered their customers to be either the company employees who used their services or third-party insurance brokers and financial advisers, rather than the end customer.
To help employees understand the end customer experience, they were encouraged to become customers themselves (through staff insurance programmes or staff pensions, for example). In addition, Old Mutual's global staff survey started to seek feedback from employees on whether they would recommend the group's products to family and friends. The comments were used to help in the design of the customer propositions. For example, in 2015 a new tax-free savings account was launched in South Africa that customers could access directly online, as well as through advisers.
Challenges in the process
Reducing bureaucracy in the operating model also was a goal, but this was difficult to achieve as more centralised controls were sought. Employees in the culture surveys often assigned negative values to the organisation's bureaucracy metrics.
Leadership delved deeply into those metrics and found that the employees saw some of the controls necessary in a centralised model as bureaucracy.
"Some of what people called "˜bureaucracy' was that they didn't like being constrained in some of the things they were doing," Kean said. "And that was actually a deliberate choice because we were trying to move from a federated to a more centralised model."
For example, actuarial sign-off was required on new insurance products that contained financial guarantees. Some employees were concerned that this would add time to the product development process and reduce speed to market. To address these concerns, Old Mutual made a significant investment in educating the businesses about the reasons behind the requirements so that they were understood, and the requisite sign-offs were built into the process early on.
Old Mutual's leaders also found that they had to allow for regional differences in a large, global organisation. Although the core values transcended everything the company did, some of the behaviours were different in a local context.
For example, in South Africa the sales approach is community-based in the mass market, where basic financial education is part of the proposition. This differs from the UK, where products are distributed to more affluent customers. Although approaches may differ depending on the region, the underlying values of integrity, accountability, and customer focus remain.
Overall, though, the organisation's work to form an optimal culture paid dividends. The initial employee values survey in 2011 found that just two of the ten cultural benchmarks sought by leadership were displayed in the organisation. By 2015, seven of ten benchmarks had been met, and the survey's metrics rated the company's culture as healthy.
The stock price climbed steadily from below £0.40 ($0.57) in March 2009 on the London Stock Exchange and was listed between £1.50 ($1.88) and £2.50 ($3.13) from late June 2012 through late February 2017, when this story was written.
"It's been a bit of an evolution," Kean said. "But I think the key thing is really starting with the values and behaviours and then just using a variety of different methods to do some follow-up measurement."
Winds of change
Kean calls the story of Old Mutual's post-financial crisis cultural evolution a "historical case study," because in the fast-changing world of global business, the organisation has moved on to a new way of operating.
Roberts stepped down as head of the company in 2015 and has been replaced by Bruce Hemphill. Under his leadership, the organisation is undergoing a managed separation of its four business units into separate stand-alone businesses, which will consist of UK (Old Mutual Wealth) and US (OM Asset Management) organisations as well as a South Africa-based emerging markets business (Old Mutual Emerging Markets) and a South Africa-based bank (Nedbank Group).
The central office's role is evolving to one of a non-operating holding company that will provide risk management and oversight to the businesses from a shareholder perspective during the transition before dissolving after a few years. But the good cultural practices that were put into place will remain in the separate business units, Kean said.
Their leadership scorecards will continue to emphasise behaviours that put the customer first. The CEOs and boards of the businesses are being equipped to revisit the core values and leadership behaviours they need, and culture surveys will be done individually by the businesses.
"They obviously need to go through the same process that we did six or seven years ago, starting out fresh," Kean said.
Meanwhile, the central office continues to work on its culture during this transition period. It's a much different exercise now, with a group of 150 employees rather than several thousand. They have gone through leadership workshops as they redefine their objectives and roles.
Performing in a new environment with a much more transitory nature has created a need to identify a new group of values that better fit their circumstances. They have identified six new values — flexibility, positivity, commitment, trust, respect, and honesty. And they are working once again to develop a culture that reflects those values.
"That's the important thing about culture," Kean said. "It will be whatever is right for a time and a place."
Ken Tysiac is a CGMA Magazine editorial director.
How to incentivise corporate culture
Company boards should be vigilant in their oversight of the incentives created by performance-related pay — and the corresponding impact on employee boards, according to the UK Financial Reporting Council (FRC) report Corporate Culture and the Role of Boards.
For instance, a board that permits profits to be the sole incentive for senior leadership and employees should not be surprised if the organisation's people commit fraud, neglect customers, or create a hostile work environment.
Basing at least some incentives on other metrics, such as survey-based statistics on customer satisfaction and employee engagement, can help bring culture to the forefront. The FRC report offers the following tips and advice for boards to provide appropriate governance over culture:
Recognise the value of culture. The board determines the company's purpose and has responsibility for making sure the organisation's values, strategy, and business model are aligned with that purpose.
Demonstrate leadership. Boards are responsible for making sure the CEO and other leaders behave according to the desired culture and embed the proper values throughout the business.
Be open and accountable. Boards can focus on how a company displays accountability in how it conducts business and engages with and reports to shareholders.
Embed and integrate. Human resources, internal audit, ethics, compliance, and risk functions should have a strong voice in the boardroom as they embed values and assess culture throughout the organisation.
Align values and incentives. The board is charged with explaining how the performance management and reward system support behaviours that align with the company's purpose, values, strategy, and business model.
Assess, measure, and engage. To understand whether behaviour aligns with the company's values and purpose, the board needs to see the results of indicators and measures that can help determine if desired outcomes are being achieved.
Exercise stewardship. Effective stewardship should include engagement about culture and encourage better reporting.
What boards should ask
- Is internal audit (IA) sufficiently highly valued within the organisation?
- Does IA have the degree of independence needed, or do we need to change the reporting lines for IA?
- Does IA have a clear mandate to incorporate cultural issues into its audits, and is this mandate written into the audit charter?
- What steps do we need to take to invest in IA and develop the skills base and capabilities?
- Could we do more to ensure IA, HR, compliance, and risk functions work collaboratively and report jointly to help us draw insights into culture?
Source: UK Financial Reporting Council report, Corporate Culture and the Role of Boards.