How Organisational Culture Creates Complexity of Management: Barclays Libor Scandal - Essay Example

? How organisational culture creates complexity of management: Barclay’s Libor Scandal BY YOU YOUR SCHOOL INFO HERE HERE How organisational culture creates complexity of management Introduction The role of management in an organisation requires more than just traditional, structured management principles of leading, controlling, planning and organising. Demands from stakeholders both internal and external, societal demands for ethical and moral business practices, and elements of human behaviour are critical considerations that will impact the ability of management of an organisation to develop an appropriate and unified organisational culture. If management teams follow guidelines of ethical behaviour, social learning theory indicates that subordinates and co-managers in the organisation will role model these behaviours so long as there is reiteration of mission and vision and establishing an environment where ethics and moral business practices are iterated repeatedly by senior executive leadership. Therefore, establishment of an effective and moral organisational culture requires significant investment on behalf of management to appeal to sociological and psychological needs and values of employees. Fairholm (2009) identifies that in order to build a positive culture, a manager must be visionary, charismatic, and inspirational to gain followership and dedication to organisational vision or mission. The psycho-social dimensions of human behaviour are what make investigation into the Barclay’s Libor Scandal so relevant when attempting to understand how culture creates complexity of management. Barclay’s was a participant in fraudulently inflating their Libor rates in order to create the perception of better creditworthiness and to make Barclay’s appear more financially stable than the bank actually was (New 2012). These actions were designed to entice shareholder investment and ensure more profitable sales of various derivatives that were, in actuality, over-valued. If senior leadership at the organisation had developed a culture of ethics dedicated to sustaining moral business practices, manipulation of the Libor interest rate would not have occurred. The purpose of this research into the Libor Scandal is to determine how culture played a role in creating a negative reputation for Barclay’s in a variety of profitable investment markets. The research examines Barclay’s senior management team involvement in the scandal and their failures in creating an organisational culture that would have prevented public outcry and legislative investigations into Barclay’s ethical business practices. The scope of the research is an investigation into what potentially drives a need for development of an organisational culture through analysis of secondary research literature describing cultural importance and the factors that could have potentially driven Barclay’s management to dismiss ethical business practices in favour of profit gain. Research identifies that culture creates management complexity with the demands placed on managers to exceed their role of structured manager to that of a human resources-focused leader that understands transformational leadership imperatives and role modelling behaviours to gain followership and dedication to meet corporate goals. Complexity at Barclay’s Starnes, Truhon and McCarthy (2010) identifies that authentic relationships can only be developed over time, starting with a series of reciprocal acts between organisational actors that, over time, leads to trust and respect. Barclay’s maintains a subordinate population and middle management population that has a high turnover rate in which long-term, effective relationships are difficult to develop as employees and managers defect to other financial institutions for better career development. A highly centralised organisation, Barclay’s leaders utilise an autocratic management style in which policy-makers are bureaucratic and executives dictate both policy and punishments for non-compliance to executive-mandated procedures (Goodnight 2004). In order to develop effective relationships and a culture of unity, there must be regular and productive communication between employees and managers where the focus of these interventions is to build harmony and unison toward meeting organisational goals (Fairholm 2009). Deming (2002) identifies that nearly 85 percent of all failures in the organisation are a direct cause of management failure. In the case of the Barclay’s Libor Scandal, autocratic leadership imposed direct orders to engage in interest rate inflation in an effort to serve corporate profit expectations. Being a centralised and highly bureaucratic environment, compliance to these directives provided transactional rewards contingent on performance as dictated by senior executive leadership. Thus, these unethical demands served as the foundation for subordinate participation in these activities related to Libor to avoid negative repercussions and ensure job security which is one of the most fundamental psycho-social needs of employees. Under this centralised bureaucracy, with no culture developed for ethical business behaviours, complying with Libor-related demands was simply a matter of acquiescence to senior-level demands. Why is this important for understanding management complexity related to culture? Barclay’s managers understood that their stock valuation and profitability were being affected by economic conditions internationally and could no longer attract much-needed investment by shareholders and private capital firms. However, Grieves (2010, p.8) identifies that change is “a negotiated order” where volition is established by promoting individualised creativity with subordinate actors in the organisation. Barclay’s management, being autocratic and rather dismissive of the importance of cultural development, simply looked at Libor adjustment strategy as a means of sustaining the corporate bottom line and thus an imperative of compliance for those internal staff members and managers authorised to adjust interest rates. There was a need in the organisation to alter existing procedure to boost profitability and credit reputation, but where no negotiated change was considered to gain followership or identify potential alternative and ethical solutions to correct the fiscal problem. A stable democracy can only come into existence when beliefs and values are shared by all principle actors in an organisation. “If there is no consensus, there is little potentiality for peaceful resolution of varying political differences” (Weingast 1997, p.246). Barclay’s senior management did not place significant emphasis on building human capital through effective human resources and making internalised appeals to satisfy psycho-social needs of employees. Thus, it would have been detrimental to employees and managers to openly speak against autocratic demands from major decision-makers and propose making alternative procedures and policies to improve Barclay’s profit margin. Herein lays the complexity of management as it pertains to culture: managers that are more transactional or transformational in design create effective exchanges and rewards between managers and employees (Antonakis et al. 2003). Rewards that are contingent on performance as well as compliance establish a vehicle between managers and employees where relationship becomes the primary focus of management interventions with subordinates. Unfortunately, Barclay’s senior management prescribed to the theory of act utilitarianism, in which a manager seeks to maximise the utility (satisfaction) of important shareholders that contribute to revenue growth without placing much consideration or emphasis on the actual means to this end (Hooker 2011). Utilitarianists will more readily dismiss broader ethical concerns so long as utility has been maximised for the organisation and for shareholders and investors. Thus, any potential outcry internally against inflating Libor rates at Barclay’s would have been dismissed under the theory of moral relativism, a theory stating that there is no universal construct of morality and ethics that would justify negative criticism of how Barclay’s chose to fraud investors when seeking to maximise investor utility. In marketing theory, consumers are more attracted to a brand when it provides opportunities for self-expansion, thus leading to long-term brand loyalty (Aron et al. 1992; Muniz and O’Guinn 2001). Barclay’s has a well-developed marketing and promotion cycle in an attempt to differentiate the brand from other financial industry competition. In a market where speculation runs high, Barclay’s leadership found it more beneficial to change operational procedures to include inflation of Libor interest rates, using traditional and structured management processes in a centralised hierarchy of control. However, the business would have benefitted by adopting more human resources-focused strategies to gain investor and shareholder loyalty by developing a culture that emphasises trust and integrity in order to appeal to important revenue contributors. This, of course, would have required more tangible investment into cultural development by being more visible within the organisational environment and imparting mission regularly with employees who require social belonging and self-esteem development from important executive figures in the business. Conclusion Managers at Barclay’s did not seem to recognise that their role in establishing a better brand reputation would have required more relationship-focused strategies which was something not deemed critical by the bureaucratic management team. Employees were simply role-modelling unethical behaviours in order to satisfy the autocratic system of management and ensure job longevity and security. If maximising utility of investors were considered a secondary objective to establishing better revenues and profit, and with employee support and loyalty, Barclay’s could have identified more appropriate solutions to its fiscal problems. As illustrated through research, culture imposes management complexity as it takes the role of structured controller to that of HR coordinator which compounds management function to include human capital development and role modelling positive ethical behaviours. References Antonakis, J., Avolio, B.J. and Sivasubramaniam, N. (2003). Context and leadership: An examination of the nine-factor full-range leadership theory using the multifactor leadership questionnaire, The Leadership Quarterly, 14(1), pp.261-295. Aron, A., Aron, E.N. and Smollan, D. (1992). Inclusion of other in the self-scale and the structure of interpersonal closeness, Journal of Personality and Social Psychology, 63(4), pp.596-612. Muniz, A. and O’Guinn, T. (2001). Brand community, Journal of Consumer Research, 27(4), pp.412-432. Deming, W.E. (2002) Chapter 6 in J. Beckford (eds) Quality: An Introduction, p.65-83, London Routledge Fairholm, M. (2009), Leadership and Organizational Strategy, The Public Sector Innovation Journal, 14(1), pp.26-27 Goodnight, R. (2004). Laissez-Faire Leadership, Encyclopedia of Leadership. Sage Publications. Grieves, J. (2010). Organisational Change: Themes and issues. Oxford: Oxford University Press. Hooker, B. (2011). Chapter 8: The demandingness objection, in Chappell, T. The Problem of Moral Demandingness: New Philosophical Essays. Palgrave Macmillan. New, C. (2012). Barclay’s Libor Scandal: Rigging affects your loan rates, The Huffington Post. [online] Available at: http://www.huffingtonpost.com/2012/07/03/barclays-libor-scandal-rate-fixing-loan-payments_n_1646876.html (accessed 1 November 2012). Starnes, B.J., Truhon, S.A. and McCarthy, V. (2010). A primer on organisational trust, ASQ Human Development and Leadership. [online] Available at: http://rube.asq.org/hdl/2010/06/a-primer-on-organizational-trust.pdf (accessed 1 November 2012). Weingast, B. (1997). 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