Good afternoon. It’s a great pleasure to take part in today’s Culture and Conduct Forum. I’m sorry that I can’t be with you “live” today, but appreciate the opportunity to take part in this forum.
I lead the New York Fed’s Initiative on Governance and Culture Reform in the financial services industry. Today I will provide you with an update on the activities of our Initiative so far this year and our plans for the coming months. I will then offer some thoughts on a topic that the COVID–19 pandemic has underscored as a key element of a well-functioning workplace culture: psychological safety.The views I express are mine alone, not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System.
Update on Culture Initiative Activities
As background, the New York Fed’s Culture Initiative began in early 2014 with three primary aims:
- Reduce incidences of misconduct;
- Promote the development of healthier cultures within firms and across the industry; and
- Increase public trust in the financial services sector.
One way we’ve been advancing these aims is through convening relevant stakeholders – from the industry, official sector and academia – to build awareness about how culture influences behavior and conduct, and to encourage innovation and the sharing of leading practices.
One of our most prominent vehicles for that has been our annual Culture Conference, which, unfortunately, we had to cancel this year due to the pandemic. In its place, we are hosting a series of webinars that focus on many of the topics we had planned to explore at the conference.
October 19 Webinar: Partnerships in Building Ethical Norms
In October we hosted our first webinar. Entitled “Partnerships in Building Ethical Norms,” it highlighted two areas in which the New York Fed has worked with the industry to raise standards of conduct. The first area is the FX Global Code, a set of principles for participants in the international foreign exchange market. The second area is the development of case studies that explore ethical dilemmas in the workplace – specifically, at financial firms. The case studies are the first work product of a New York Fed sponsored group that grew out of our Initiative, the Education and Industry Forum on Financial Services Culture (the EIF). Members of the EIF include academics and representatives from financial institutions.
The case studies were written for use by universities with undergraduate and graduate students interested in pursuing a career in financial services, as well as for use with new employees in financial institutions. They cover a range of timely issues, including: the line between exploiting a loophole and cheating; how to approach a business strategy that is “too good to be true;” confronting racial bias; and making ethical decisions when there are no clear right or wrong answers.
If you would like to view it, the webinar is available on the New York Fed’s public website.
You can also find a link there to the case studies themselves.
Our second webinar, which will be held on December 2, is entitled “Trust and Decision Making.” We have assembled an outstanding panel for this event, who will consider questions such as:
- What is trust and why is it important to a culture?
- What makes for good decision making? What role do group dynamics and biases play?
- What is the connection between trust and decision making? And what does brain imaging reveal about them?
We are currently planning two more webinars for early next year, focusing on “Diversity, Equity and Inclusion” and “Purpose and Stakeholders.” We hope you’ll be able to tune in for each of them. Again, see our public website for details.
Psychological Safety and the Pandemic
Turning to two areas of special attention at this conference – culture and COVID-19 – I would like to discuss the importance of psychological safety. As a live example, I will draw on the experience this past spring of the Bank Supervision Group of the New York Fed, our largest division and the area in which I work.
The author Amy Edmondson has defined the term psychological safety as: “A shared belief that a team is safe for interpersonal risk taking...[A] sense of confidence that the team will not embarrass, reject, or punish someone for speaking up. This confidence stems from mutual respect and trust among team members.”1 This concept grew out of research in the 1960s by Edgar Schein on organizational change, which discussed the need to create psychological safety if individuals are to feel secure and capable of changing.2 A safe environment is one in which people are free to express their thoughts, questions, concerns – as well as admit mistakes. Moreover, as Edmondson noted earlier this year, “This is vital to leveraging the benefits of diversity, because it can help make inclusion a reality.”3
Research on psychological safety has also shown its foundational connection with team learning and performance. A few years ago Google asked itself, “What makes a team effective?”4 They studied their own teams, and discovered five key dynamics at play:
- Psychological safety: Feeling safe to take risks and be vulnerable with others.
- Dependability: Getting things done on time with excellence.
- Structure and clarity: Having clear roles, plans and goals.
- Meaning: Finding a personal sense of purpose in the work.
- Impact: Believing that the work matters.
Of these five factors, psychological safety was by far the most important. The study found that employees on teams with higher psychological safety are more likely to stay at Google, leverage diverse ideas, increase revenue, and are rated twice as effective.
So, if psychological safety is essential for the highest functioning of teams, how can it be fostered in the workplace? In a TED Talk last year, Edmondson offered three practical suggestions:5
- Frame the work challenge as a learning problem, not an execution problem. Recognize and make explicit that there’s enormous uncertainty and interdependence ahead.
- Acknowledge your own fallibility, which creates more safety for speaking up.
- Be curious and ask lots of questions. That generates a necessity for multiple voices and views.
The Pandemic Experience
With those concepts and practices in mind, allow me to review the early pandemic experience of my group within the New York Fed. I believe that, even if we were not fully aware of it at the time, our initial response to the crisis resulted in an increase in psychological safety and effectiveness in the group.
In April, after we had all been working remotely for about a month and COVID-19 infection rates were nearing their zenith in New York, we decided to create a special blog series within the group. The purpose of the blog was to provide a forum for sharing the full range of emotions, challenges, and blessings that people were experiencing. This was highly unusual for a traditionally buttoned-up organization like ours – central bankers don’t really talk about their feelings much – and not without its risks. But we recognized that the pandemic was a collective trauma and believed that, at such a time, sharing with others could lead to deeper personal understanding, more compassion for one another, and sustained group cohesion.
The blog generated over 50 posts and well over 300 comments, conveying five main themes:
- First, an underlying feeling of loss and grief. This took many forms, from the specific bereavement for a loved one to a vague mourning of the end of a way of life.
- Second, the posts expressed empathy for others, the importance of everyday acts of kindness, and a deep appreciation for essential workers.
- Third, several of the posts – sometimes submitted anonymously – bravely called-out social issues that the crisis has laid bare, such as xenophobia, domestic violence, and class differences.
- These three themes often led to a fourth, namely, a feeling of guilt. This took several forms, such as the recognition that others might be living under much more difficult circumstances, making greater sacrifices, and doing more to directly address the crisis.
- The fifth and final theme concerned ways to cope and the possibility of positive change. In all, a sense of humor also seemed to be a key element.
At the end of May, as the most intense period of the COVID-19 crisis receded in New York, it became clear that, for some, the situation had become less overwhelming and more a source of possibility and new opportunity. To conclude the blog, we asked what aspects of the experience people would like to see carried ahead in the group and in their own lives:
- There was a strong desire to maintain a newfound openness and connectedness in the group. In part, this involves practicing empathy – acknowledging that we almost never know what burdens others are carrying – and extending more trust to each other than in the past.
- People also wanted the lessons of remote working and a spirit of flexibility and adaptability to become a new hallmark of how work gets done.
- On an individual level, the crisis made many people ask themselves what’s truly important in life and caused a refocusing of personal priorities and relationships.
Challenges and Conclusion
The blog revealed important lessons about psychological safety. For one thing, the blog explicitly defined itself as a “safe space.” It invited candor and vulnerability. For another, the bloggers were able to draw on stores of mutual respect and trust that had been built up over many years. Together, these elements worked to facilitate “interpersonal risk taking” – speaking up – without fear of embarrassment, rejection or punishment. What is more, the COVID-19 crisis almost demanded this kind of safe space. The situation was one of “enormous uncertainty and interdependence,” required questioning and learning, and the engagement of multiple voices and views.
Speaking for myself, I continue to experience the new “openness and connectedness” across the many work teams I’ve been involved with since the pandemic began. People seem freer to say what they really think, are listening more closely to others, and approaching interactions with the assumption of good intent. Deeper values are more daily present than in the past. Many people strongly welcome the atmosphere of greater psychological safety that has emerged at work, and don’t want to lose it. But maintaining and building on it is, of course, not without its challenges, especially in a long term remote working environment.
Perhaps like many of you, for me the most significant inhibitor of this new atmosphere stems from not being physically present with others. I miss all the crucial cues one gains from subtle facial expressions and body language. I also feel “siloed” more than ever, only communicating with those with whom I directly work. I often worry about the lack of natural “flow” in virtual discussions and its impact on sound decision-making. Diversity and inclusion, it seems to me, also become more difficult to encourage and practice through a screen.
I noted a moment ago that an important factor in the development of psychological safety during the pandemic was a deep reservoir of mutual respect and trust that had long existed in the group. People relied on established relationships and shared assumptions from the pre-crisis world. It is unclear how long this “banked experience” will continue to support a safe and effective working environment.6 Going forward, a central question will be how we can continue to support psychological safety as new work teams are formed and new hires are virtually integrated into the organization. Indeed, this is a key issue we will consider in our next webinar.
One final reflection. I sometimes wonder whether it is psychological safety that we are most in need of – or is there something else? When I recall times when I felt most productive and happy at work, I certainly also had an underlying sense of safety. But, there was something more: the environment was not only safe, but generative. That is, the work experience was characterized not only by open expression and easy exchanges with others, but by learning and, most importantly, by change. In the end, I want to suggest that psychological safety should be understood as a necessary condition for effective work. But that we should not lose sight of what we really long for, in work as in our lives: deep human connection and growth.