svb – a lesson in principles-based thinking

3 min read

What caused the bank run at Silicon Valley Bank (svb)? People blame technologies like Twitter; the techies of Silicon Valley for not understanding their financial risk profile; Venture Capitalists for spooking their clients; the employees and their leadership at svb for making poor investment decisions; and regulators for not catching the problem sooner.

What if no one is to blame, and yet, everyone has a part to play in the solution? Lessons must be learnt and we can all help to create a better, safer and fairer world. The answer to these questions could improve the state of companies of all shapes and sizes, industries and even countries.

The data suggests that, despite regulatory bodies being the rule maker, people fundamentally do not trust the banks, or their regulators to do right by them. Is this what caused the bank run at svb? According to a Financial Regulation Survey, 77% of Americans believe bankers would harm consumers if they thought they could make a lot of money doing so and get away with it. Moreover, 74% of Americans believe regulations often fail to have their intended effect.

The question then becomes, how do you restore trust in the banking system and its regulators?

Andrew Bailey, ex-CEO of the Financial Conduct Authority, wrote in a 2019 article on the future of financial conduct regulation that “an organisation that prioritises being within the rules over doing the right thing, will not stand up to scrutiny for long.” He goes on to emphasise that “the roles of outcomes, principles and rules should not be confused, though they do each have a role to play.”

There is good reason to believe that with the right levels of trust in the banking system and a principles-based approach to regulation, the svb bank run could have been avoided. Employees at svb would not have taken unnecessary risks with consumers’ capital, VCs would not have advised withdrawing their funds, and consumers would have trusted the system to do right by them.

History has shown a tendency to talk principles and write rules, amongst the regulator and regulated alike. But principles are not debating points, they are the bedrock of regulation and there is a need to enhance their standing and practical impact.

Let’s now focus on the practical element of a principles-first approach to regulation, leadership and governance. The UK’s FCA is in the process of paving the way with their Consumer Duty. The duty includes a new Consumer Principle that “a firm must act to deliver good outcomes for retail customers.” This is a fundamental shift in focus away from rules (though new rules will apply) towards principles as the mechanism by which to deliver better outcomes.

A duty is to the regulator what a value is to a company. These duties, or values, are a set of guiding principles, behaviours and social norms of an organisation. They are designed to support the organisation or regulator, in achieving their strategic goals, their purpose, or mission.

Principles and their underlying behaviours are measurable actions that should be managed to ensure alignment and strategic success across any organisation. Get that right, you get your culture right. Trust will follow.

Culture15 is your complete toolkit for tracking culture change. CEOs and Exec Teams at world-leading organisations use Culture15 analytics to ensure success by aligning their culture with what they need to execute their strategy. If you’d like to find out how to define the culture and values you need, diagnose the culture you have and close the gap, talk to our team. 

Book a Demo

Schedule a virtual meeting with a member of the Culture15 team.