Lecture 4 - Supervisory bodies

Question 1

What is supervision?

Answer 1

Stimulating compliance and ethical behavior of individuals and groups working in regulated organizations as a supervisor (monitoring and enforcement)

Question 2

Regulation

Answer 2

Rulemaking

Question 3

Supervision

Answer 3

Monitoring and enforcement

Question 4

Unethical behavior

Answer 4

Unethical behavior is defined as any organizatioal member action that violates widely accepted societal moral norms

Question 5

A supervisor should…

Answer 5

Pick important problems, fix them and tell everyone about it

Question 6

Supervision from a legal and economic perspective

Answer 6

“Rules and sanctions are known to all concerned and steer human behavior”

They hope organizations will learn from getting a fine - they cannot always catch unethical behavior

Question 7

Supervision from a behavioral perspective

Answer 7

Supervisory behavior (communication, focus) leads to organizational behavior (leadership, culture, organizational structure) which leads to outcome

Question 8

The regulatory pyramid

Answer 8

Emphasizes the importance of starting with less intrusive interventions and escalating only if these measures fail
1. Base: convince, instruct and influence norms
2. Middle: deterrence (give warning)
3. Top: impose penalty, revoke license

Question 9

Culture is predictive of…

Answer 9

Financial performance
Employee well-being
Organizational effectiveness
Ethical behavior
Learning
Quality of service to customers

Question 10

Bad apples approach vs corrupting barrels approach

Answer 10

Bad apples: misconduct, blame the individual for the errors
Bad barrels: moral climate, outcome inequality, ineffective error approach, blame the organisation

Question 11

What is an errror?

Answer 11

Unintended deviations from plans, goals or feedback processing, as well as incorrect resulting from lack of knowledge

Question 12

Error management culture

Answer 12

Employees dare to admit to their errors and active communication

Error are detected, analyzed and occured quickly, and knowledge is actively shared within an organization with a focus and learning from errors

Question 13

Financial products are…

Answer 13

Complex
Intangible
Big impact
Low buying frequency
Long incubation time
- Consumers often don’t see the differences between good and bad products and services

Question 14

Take home messages

Answer 14

Financial insitutions have not always acted in the best interest of their consumers
Financial products are complex products - customers do not readily understand whether products are good or bad
Financial supervision is important

Question 15

Culture as a rootcause of harmful behavior

Answer 15

Culture in financial services is widely accepted as a key root cause of the major conduct failings that have occured within the industry causing harm to both consumers and markets

Question 16

Core elements that predict compliance and ethical behavior in organisations

Answer 16

Error management
Psychological safety
Responsible rewards and recognition
Balanced decision making
Low instrumental climate
Ethical leadership - tone at the top!

Question 17

What factors influence unethical behavior in the hypothesized model?

Answer 17

Perceptions of the board’s commercial focus.
Perceptions of the board’s focus on consumers’ interests.
Perceptions of unjustified board pay.

Question 18

Tone at the top

Answer 18

• Board members’ behavior sets the tone for ethical and unethical behavior throughout the orgaization, especially in the financial sector
• Supervision should prioritize infuencing the board of directors and supervisory board to establish the right ‘tone at the top’