What Analysts Missed: How Employee Experience Influences Operational Risk in Banking

Lehman Brothers collapsed in September 2008, triggering the greatest economic downturn since the Great Depression. During that time, the U.S. economy shrank by 4.3% and unemployment more than doubled, climbing from under 5% to 10%. Much has been written about the economic factors that contributed to the collapse. The notorious credit default swaps and the weakness of the underlying mortgage market were made (in)famous by Michael Lewis in his book and subsequent movie The Big Short. However, an often overlooked factor is the culture and behaviours of the people working in the banks at the time and how this might have contributed to the ensuing mayhem. 

According to former employee Andrew Gowers, Lehman’s pre-crisis culture was aggressive: open challenges were discouraged, risk-averse voices were sidelined, and career survival depended on endorsing ever-larger bets in the mortgage and real-estate markets. Thus, Lehman’s crisis was not just about bad bets, but a culture that encouraged reckless risk-taking.  

Would things have been different if risk culture had been measurable? 

While balance sheets are carefully monitored, the people behind those numbers, their abilities and experiences, are harder to quantify. Today, we can detect these early signals through Welliba’s EXcelerate, an easy, non-invasive, and fast way to assess risk-taking behaviour. To test this, we conducted a case study on operational risk intensity (ORI) in European banks and its association with employee experience (EX). ORI (operational risk ÷ total assets) is the risk of losses from inadequate or failed processes, people, systems, or external events. It is a key regulatory metric in banking, as EU legislation requires institutions to manage and mitigate ORI to avoid large-scale losses. Traditional measures such as Risk & Control Self-Assessments (RCSAs) or loss event analyses rely on past incidents to detect patterns. At Welliba, we explored a novel approach: predicting ORI using passive data. 

The evidence 

And what we found supported this connection: organisations with a stronger EX score exhibited lower operational-risk intensity. This shows that the employment culture in a financial institution can impact overall performance. Specifically, three EX factors, top-down communication (r = -0.64), career progression and advancement (r = -0.55), and workload (r = -0.43), strongly correlated with operational risk. 

Top-down communication (r = -0.64) refers to the clear and timely distribution of relevant information from leadership to employees. When messaging on expectations and business strategy from senior leaders is unclear, it can lead to a misalignment of objectives with employees. This creates a riskier environment, particularly in highly regulated spaces like banking. 

Career progression and advancement (r = -0.55) reflects the support and clarity employees receive around career paths, recognition, and succession planning. When employees feel the pressure of limited advancement opportunities or unclear expectations for highly rewarded behaviour, they can be encouraged to take more risks to achieve their career goals. This individual behaviour can aggregate to create a whole culture built around risk-taking and high-stakes behaviour as a way of getting ahead. 

Workload (r = -0.43) refers to having manageable volumes, even distribution over time, and realistic deadlines. Overworked employees can engage in riskier behaviour for two main reasons: Firstly, simple errors are made through fatigue or pressure. Secondly, shortcut-taking is a way of staying ahead of an unmanageable workload.  

By improving these areas, there’s potential to drive down risk intensity across the organisation. For example, career progression can be clarified by creating transparent promotion criteria with clear and structured pathways, error rates can be decreased by monitoring team capacity and redistributing tasks, and top-down communication can be improved by developing and enforcing a consistent leadership communication plan to align expectations and reduce ambiguity.​  

Culture is not a “soft” issue 

Overall, the lessons from Lehman, and other failed institutions, remind us that culture is not a “soft” issue. Instead, it can determine the fate of entire organisations with sometimes macroeconomic consequences. Our findings show that weak communication, unclear career progression, and unmanageable workloads are not just HR concerns but measurable drivers of operational risk. What Lehman lacked, a way to quantify these EX warning signs, can now be achieved through EXcelerate. Leaders can pinpoint high-risk areas, intervene early, and reduce the likelihood of catastrophic failures. Hence, strengthening EX is not just about engagement or retention; it is about safeguarding stability, protecting jobs, and reducing the risk of witnessing a collapse on the scale of Lehman Brothers again. 

After the collapse, many of Lehman’s traders moved on to acquire firms such as Barclays and Nomura. In the years since, several of these banks have faced their own financial and reputational scandals. History, it seems, has a way of repeating itself, unless leaders take deliberate action to change behaviours and dismantle cavalier, risk-taking cultures. 

References: European Banking Authority, The Times, Federal Reserve