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Last coffee at Lloyd's?

Updated: Dec 9, 2022

We've written before about the poor culture at Lloyd's, which has been commented on by the FCA. Nothing much seems to have happened. Culture is immensely difficult to change, but sometimes it is essential for survival. FCA has issued another letter about culture. Is this their last chance?

Changing World

The world is changing: more and more organisations are being held to account for their moral conduct while going about their usual business. This change is not confined to capitalist organisations: recent regulatory actions and scandals have affected charities, political parties, and the church amongst others. The requirement to recognise the interests of society by acknowledging regulators as valid stakeholders in an organisation is a paradigm shift that will not go away.

This month FCA sent its latest portfolio ‘Dear CEO’ letter to Lloyd’s & London Market Intermediaries which, amongst other issues, highlighted continuing concerns about culture. The letter could not be addressed to Lloyd’s itself because Lloyd’s itself is technically a regulatory body: FCA doesn’t regulate the market, only its members.

So can Lloyd’s afford to ignore this latest shot? We don’t think so. There is no evidence that the poor culture at Lloyd’s has changed for the better. The very same culture that is resisting the changes needed for Lloyds to stay at the heart of a global reinsurance market. As such the FCA letter is another step along a historically inevitable path that must lead either to a painful root and branch reform at worst - or the realignment of culture within its senior management team at best. To understand why, let’s explore the bigger picture.

Historical roots

For centuries, capitalist organisations have been free to ignore the needs of wider society in pursuit of profit. Capitalism is itself amoral: it is a highly efficient system for generating and rewarding wealth that ignores whether this is done morally or immorally. Its only constraints are those imposed by law for the benefit of society. The last few decades have seen a significant shift in society’s views about what is permissible. Firms are quite capable of ignoring public opinion, so regulation has had to be developed to impose legal constraints on practices that damage individuals, markets, the environment and society at large.

Clear signals have previously been sent to Lloyd’s that parts of their culture are no longer acceptable in modern society. But the most visible actions they have taken are reminiscent of the lip-service that has been given in the past to CSR: make positive noises and set up delegated “action groups” that don’t have the power to do anything substantive.

Resistance to change

Why? Three reasons. The first is the current anomaly that Lloyd’s themselves are regulators, so are not subject to FCA rules. The second is that they are a B2B operator so don’t get the same level of aggressive scrutiny imposed on B2Cs. And finally, cultures inherently resist change: those who have benefitted from the laissez-faire of the past simply don’t welcome change. It takes genuine courage to melt the permafrost in such a well-established institution.

Although the regulators have been pilloried for poor effectiveness in their early years, they are constantly raising their game to the extent that firms can no longer afford to ignore the clear messages they are sending. Outside of Lloyd’s, they have already shifted concerns about culture from the CEO (who is usually integral to an existing culture) towards the Board and the Chairman (who have the power to demand the changes required).

Smell the coffee

The displacement activity that has been observed at Lloyd’s is no longer sufficient to string the regulators along. Today, society demands that it be respected as a significant stakeholder in all organisations. Lloyd’s can have a prosperous future in the long term, but only if it wakes up and smells the coffee. It needs to drop its disingenuousness approach to culture and courageously embrace the changes required.


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