Careers in banking and finance are renowned for being high-pressure and intense, with a focus on competitive edge, profits, and growth. While these aspects are undeniably important, economic uncertainties, technological advancements, and new ways of working require business leaders to prepare their workforce for rapid change.
These broad trends mean a greater emphasis on employee learning and development. For many organizations, it also signals a broader cultural shift that requires fostering psychological safety.
In banking and finance, fostering psychological safety is critical for team dynamics, enabling open communication, continuous learning, and better decision-making.
When employees feel comfortable speaking up, teams can more effectively solve problems, learn, innovate, and improve performance.
Low psychological safety leads to a culture of silence, erodes trust, hinders learning and innovation, and increases risk.
Leaders shape a psychologically safe environment by modeling openness, encouraging the expression of ideas, and empowering team members to take risks and innovate.
What is Psychological Safety and Why Does it Matter?
First coined by Harvard University psychologistAmy Edmondson, psychological safety refers to the ability to speak up in a group without fear of embarrassment, punishment, or marginalization. Team psychological safety leads to better problem-solving, increased innovation, and improved performance.
In fact, Norges Bank Investment Management recently announced apsychological safety research initiative in collaboration with Dr. Edmondson and the Stockholm School of Economics. The goal is to understand how promoting psychological safety and resilience among employees can improve performance.
Norges Bank isn’t the first company to study psychological safety in the workplace. Google’s widely publicized “Project Aristotle” revealed in 2016 that psychological safety was the most critical factor in predicting team performance. Since then, psychological safety has become asignificant topic of study and debate in business leadership and management.
Psychological Safety: A Key Ingredient in Learning and Development
Strong connections exist among learning and development, psychological safety, and team performance. A comprehensivemeta-analysis of 117 empirical studies revealed significant relationships between psychological safety and creativity, learning behavior, information sharing, work engagement, and task performance.
Leaders play a pivotal role in strengthening this connection when they approach failures as valuable learning opportunities. Doing so promotes a psychologically safe work environment where continuous learning and development happen in everyday work.
Moreover, when teams have a sense of psychological safety, they’re more inclined to think creatively, experiment with new ideas, and develop a growth mindset. In this way, psychological safety enriches the individual learning experiences of team members, empowering them to make more substantial contributions to the overall success of the organization.
When Psychological Safety is Low
In banking and finance, a lack of team psychological safety can lead to errors and sometimes substantial consequences. Without psychological safety, teams struggle to trust each other and their leadership.
Team members are less likely to communicate openly, vocalize ideas or concerns, and stay engaged in their work. Employees may hesitate to voice concerns or admit to their mistakes due to the fear of disciplinary action or damage to their reputation.
Low psychological safety creates cultures of silence where issues go unaddressed and learning opportunities are missed. Multiplefinance and accounting scandalshave occurred in workplace cultures where employees felt unable to raise concerns internally without retaliation.
Even when nothing illegal or unethical happens in a workplace, a lack of psychological safety hinders team problem-solving, innovation, and productivity. In turn, team performance suffers and employee turnover increases.
How Leaders Can Foster Psychological Safety
Cultivating team psychological safety creates an environment that supports continuous learning and development. As a leader, fostering a culture of psychological safety is essential to increasing team productivity, innovation, and performance.
Creating team psychological safety requires deliberate, ongoing effort. Here are some strategies leaders can implement to promote psychological safety:
Lead by example
Leaders must promote a culture of psychological safety by setting an example through their behavior and communication. When leaders openly acknowledge their mistakes and encourage their teams to do the same, they demonstrate a strong self-awareness of their values in actions and words. Leading by example encourages team members to do the same.
Leaders withstrong communication skills can more effectively engage and connect with their teams and other stakeholders, which promotes psychological safety. Encourage open and transparent communication at all levels of the organization. Create platforms for employees or team members to share their ideas, concerns, and feedback without fear of repercussions.
Treat failures as learning opportunities
Rather than punishing mistakes, view them as opportunities for learning and improvement. Psychological safety plays a critical role by enabling teams to analyze and understand what went wrong without fear, so they can learn as a group and avoid making the same errors in the future.
Invest in training and development
Psychological safety and a culture of learning work together to encourage employees to develop learning and growth mindsets. Companies should support these mindsets by investing intraining and development programs, making employee learning and growth a priority.
Recognize and reward team achievements
Acknowledge and reward employees who contribute innovative ideas or take responsible risks, even if those efforts don’t always lead to immediate success. These incentives not only boost psychological safety but also encourage a culture of experimentation and continuous improvement.
Build diverse and inclusive teams
Diverse teams with varied perspectives are more likely to identify risks and opportunities and avoidgroupthink. Leaders promote psychological safety by creating an environment where individuals, regardless of their backgrounds or characteristics, feel comfortable participating in discussions and expressing their unique viewpoints, concerns, and ideas.
Psychological Safety Empowers Teams to Embrace Learning
In the high-stakes realm of banking and finance, psychological safety is critical for improving team performance. Psychological safety profoundly influences team dynamics, promoting open communication, innovation, and a culture of continuous learning and development.
Low psychological safety leads to a culture of silence, low trust among teams, unaddressed issues, and missed learning opportunities, stifling innovation and escalating risk.
Leaders play a pivotal role in fostering psychological safety by modeling openness, encouraging the expression of all ideas, and responding positively when team members speak up. These strategies empower teams to embrace learning and experimentation, boosting innovation and performance.
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