A Starling Insights Deeper Dive Report

Supervisors on Supervision

— Chapter Three Preamble —

“Culture in financial institutions is everywhere and nowhere.”
—Andrew Bailey, then-Chief Executive, UK Financial Conduct Authority (2017)

Now the Governor of the Bank of England, Andrew Bailey’s remark above captures the core dilemma that continues to challenge supervisors across the globe. Culture, as he rightly noted, permeates everything — decisions, behaviors, incentives, habits — and yet it seems to evade efforts to gauge it's workings until manifest in performance outcomes, and usually poor outcomes at that. 

But culture is not “nowhere,” it is simply under-examined. Its ubiquity is perhaps what makes culture easy to neglect and, for too long, we’ve done just that. But when leaders fail to ask the right questions about how culture actually operates, they forfeit one of the most powerful levers available to them for ensuring institutional integrity and adaptive resilience.

Culture is not a mere abstraction. It is not captured in slogans nor advanced meaningfully through routine HR initiatives. Culture is the infrastructure of organizational behavior, the scaffolding that supports perception, decision, and action. And what decades of research across sectors has shown — whether in aviation, healthcare, or financial services — is that ‘invisible’ cultural failures nearly always precede visible institutional failures. 

Moreover — and this is the essential takeaway — this same research clearly demonstrates that problematic cultures are most often announced not through overt misconduct or performance rupture, but through silence.

That’s why the absence of dissent cannot be presumed to signal alignment. While that may be the case, it is more often an indicator of fear. In any industry, supervisors cannot afford to confuse deference with trust or compliance with candor. The most dangerous organizations are not noisy or visibly troubled. They are the ones in which people know better, and say nothing.

In my research on psychological safety — the belief that it is safe to speak up, ask questions, and report concerns without fear of punishment or humiliation — I’ve found that the difference between high-performing teams and dysfunctional ones isn’t intelligence or talent. It’s whether people are willing to tell the truth when it matters most. And in this sense, culture is indeed “everywhere.” 

Supervisors cannot afford to confuse deference with trust or compliance with candor.

This has direct implications for supervisors. Because when you supervise people in complex institutions, your effectiveness is defined not just by what you enforce, but by what you make it possible to know. And that requires seeing culture not as an outcome to be audited but as a system condition to be examined in vivo — and one that is understood to be a precursor of performance.

Right Kind of Wrong

Culture, in this way of thinking, is not “what people do when no one is looking,” as it is so often articulated. Rather it’s what they do precisely because they feel themselves to be under scrutiny and subject to peer judgement. Culture is found in what people are willing to say when everyone is tuning-in. Culture, that is, governs what feels speakable (or not). It therefore shapes what gets surfaced early and what metastasizes quietly, only to surface when it’s too late to course correct. 

It’s here that the lessons of failure become essential.

In my book, Right Kind of Wrong, I distinguish between basic, complex, and intelligent failures. Most organizations know how to ensure appropriate consequences for basic failures — slips and lapses where the right answer was known but not acted upon. Some are familiar with complex failures — multi-causal breakdowns that emerge from interacting conditions, which can often be prevented by timely speaking up, which may provide early warning of conditions heading in the wrong direction.

But few truly understand what I call intelligent failure: the kind that results from thoughtful experimentation in new territory, driven by a purposeful desire to achieve learnings that can be achieved in no other way. Why should this matter to supervisors? 

Because the work of culture risk governance and supervision represents a new supervisory terrain. There is no fixed playbook. There are no universally accepted frameworks by which culture is to be assessed nor agreed metrics to animate those absent frameworks. And if we want to build supervisory regimes that effectively identify and address behavioral conditions inside institutions before harm is done, then we must be willing to experiment — and sometimes to fail.

No system built for certainty can survive in a world defined by volatility and complexity.

That means regulators must not only observe the cultures of the firms they oversee, but they must also be ready to study their own. What norms govern speaking up (or not) within supervisory bodies themselves? What behaviors are reinforced in review meetings, in board discussions, in team debriefs? Are early signals rewarded, quietly discouraged, or actively dismissed? Do junior staff feel they can challenge assumptions, or are they tacitly encouraged to defer until it's too late?

These are not peripheral questions. They go to the heart of supervisory efficacy and legitimacy. The next frontier in supervisory innovation is not another rulebook. It is behavioral self-awareness at the organizational level. It is about embedding structures that detect when silence is replacing signal. And it is about normalizing intelligent failure as a vital investment in serious institutional learning.

No system built for certainty can survive in a world defined by volatility and complexity. Most supervisory bodies are designed for clarity, consistency, and control, leaving little room for ambiguity or experimentation. Yet managing culture related risks (and opportunities!) demands learning before there is consensus. It demands curiosity in the face of discomfort. It demands that reports like this are taken as an invitation and call to action, rather than a critique or condemnation.

Psychological Safety in Action

In recent years, across many industry sectors, boards, executives, and their oversight authorities have begun to place increased emphasis on psychological safety, equating it with the capacity to surface latent risks, to enable learning from error, and to foster the kind of open dialogue necessary for adaptive performance in complex, high-stakes environments. It is gratifying to see the work I presented in my book, The Fearless Organization, influencing such important discussions.

But it is disconcerting to observe how poorly many of these well-intentioned leaders apprehend what I hoped psychological safety to convey. Too often, it is presented as a promise of comfort, consensus, or immunity from consequence, rather than what it truly is: a shared belief that candor is expected, dissent is permitted, and learning is worth the risk of speaking up. 

When misconstrued as being “nice” or ensuring emotional ease, psychological safety becomes a shield against discomfort rather than a scaffold that supports growth. Psychological safety is not about agreeing with every voice or avoiding friction; it is about ensuring that every voice can be heard, especially when stakes are high and perspectives diverge. 

In the context of the discussion of culture risk governance and supervision curated in this report, this implies that psychological safety must be understood as a structural precondition for surfacing dissent, diagnosing early warning signs, and enabling the kind of rigorous, candid dialogue that complex systems require if they are to avoid unnecessary failure and adapt to risk in real time.

The deeper risk lies not in trying and failing, but in failing to try.

I was recently struck by a powerful illustration of the practices I hope to encourage through my work on both intelligent failure and psychological safety. Amanda Anisimova’s historic 6-0, 6-0 loss at Wimbledon was a global, televised failure of the highest order. But what the press rightly seized upon was her equally public reaction. In just over five minutes — and through visible tears — she reframed the experience not as humiliation, but as a lesson. 

Anisimova honored her opponent, thanked the crowd, and spoke candidly about her own nerves and fatigue. And then, quoting Marianne Williamson, she did something more powerful still: she transformed pain into purpose. “Pain,” she said, “can burn you up and destroy you, or burn you up and redeem you.” 

In that moment, Anisimova modeled intelligent failure — a failure that occurs in pursuit of a worthy goal, in unfamiliar terrain, with considered risk. As I later remarked, it was “a masterclass in failure.”

But even more remarkably, she did so with the emotional courage and generous candor that reflects psychological safety as I mean the term to be understood and practiced. 

The relevance of her example for financial supervisors is profound. Just as Anisimova stood before the world and owned a painful outcome with transparency and composure, so too must supervisory institutions learn to reflect openly on where their existing frameworks fall short, where ambiguity persists, and where embracing intelligent failure may offer the clearest path to future resilience. 

Supervisors, like athletes, operate under public scrutiny. Their hesitation to admit uncertainty or pilot unproven approaches may be presented as prudence and may even genuinely feel like such. But it is often simply paralysis disguised as professionalism. The deeper risk lies not in trying and failing, but in failing to try. And in a system where so much rides on acting with foresight, the refusal to experiment is itself a kind of recklessness.

Meeting the Public Service Mandate

If supervisors want to demand candor from the firms they oversee, they must first cultivate it within their own ranks. That means making it easier to speak up early. And it means recognizing that many of the most important signals of future institutional outcomes may not be found in standard risk models and yet clearly evidenced in cultural dynamics.

If this sounds like a focus on “soft stuff” consider: most institutional failures of the past 20 years — whether in finance, medicine, or aerospace — were preceded by someone seeing a problem and deciding not to say anything about it until it was too late. If this is what’s meant when we say that culture is “everywhere,” then the question is no longer “Does culture matter?” It’s “Are we willing to address culture with the same seriousness that we apply to liquidity and leverage ratios?”

Recent public debate features competing demands of the public service mandate that financial sector supervisors are asked to fulfill: promoting growth and competitiveness, on one hand, and ensuring safety and stability, on the other. To my mind, this has too often been framed as a zero-sum tradeoff. In truth, the aims are complementary and achieving either with greater efficiency demands a new approach to culture risk governance and supervision. One that is predictive, rather than reactive.

Designing such an approach requires new learning: about behavioral drivers, organizational norms, and the conditions under which early warnings are surfaced or suppressed. And learning at this level cannot happen without experimentation. This implies testing new models, piloting new instruments, and probing the gray zones where culture, conduct, and governance intersect. 

In short, it means risking intelligent failure within supervisory institutions, and that they themselves cultivate the psychological safety necessary if experimentation to be made possible. This is what is now demanded if supervisors are to meet their entwined public service mandates.

As outlined in this report, past efforts to address culture have struggled, understandably, with an idea that is often presented as ephemerous, intractable — “everywhere and nowhere.” But effective culture risk governance and supervision is not beyond our reach. We just have to decide how we’re going to seek it out — and that it’s safe to learn from what we find.

Amy Edmondson is the Novartis Professor of Leadership and Management at Harvard Business School, a chair established to support study of human interactions that lead to the creation of successful enterprises and the betterment of society. She studies leadership, psychological safety, and organizational learning.

Her book, The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation and Growth (Wiley, 2019), offers a practical guide for organizations serious about success in the modern economy and has been translated into 15 languages. Edmondson’s latest book, Right Kind of Wrong (Atria), builds on her prior work on psychological safety and teaming to provide a framework for thinking about, discussing, and practicing the science of failing well.