Trust and the Banks - Defusing the Bomb
"Trust is like a piece of silk, once torn, you will always see the join" Anon
"Just as the revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long term dynamism of capitalism itself" Mark Carney, Governor, Bank of England
Whilst the latest banking scandal may not have surprised even the most optimistic of capitalists, for the most part it fills most of us, even ex-bankers like me, with an overriding sense of gloom.
How dare they? They have fixed the currency markets, fiddled the LIBOR rates, mis-sold PPI, endowments and other financial products. When push came to shove, they proved to be undercapitalised and now the economy is on the up, they are slow to lend. Even this week RBS has been fined millions for failing to invest in its IT systems - putting our money at risk.
Should we be surprised? Banks, remember, are relative newcomers to the world of unfettered capitalism and since the freeing up of regulations in the 1980s have been most anxious to please their demanding owners. Not us the customers, but the shareholders. In this context, all efforts have been made to maximise financial returns to ensure the share price and dividends were optimised. Strategies were set to maximise returns with "under-performing" businesses being sold off, being identified as "non-core", and new investments in riskier opportunities pursued. Staff were trained, incentivised and rewarded on the basis of achieving the overarching financial returns. New performance management approaches were introduced to encourage a single-minded drive to enhancing profits. At the same time, banking products became riskier and a rising market supported a frenzied dash to out do each other. A poisonous cocktail.
So how do they rebuild trust?
More easily said than done. There are some commentators who have said that the UK Banks face at least a decade to rebuild their reputations and even then only if they commit to fundamental change.
But what will this change require?
The likes of Antony Jenkins, CEO for Barclays, are facing not just a PR offensive but a battle for the hearts and minds of their respective organisations.
"There might be some of you who don't feel they can fully buy into an approach which so squarely links performance to the upholding of our values. My message to those people is simple - Barclays is not the place for you".
Antony Jenkins, CEO, Barclays
Powerful as these words are, cynics might suggest that they are more designed for onlookers like us than the staff themselves.
Fundamental change requires a more radical 5 step approach:
1. Realign market expectations. The UK Banks need to create a dialogue with investors and the wider market that manages expectations on shareholder returns but that places greater priority on consistency of return. Banking needs to become boring again.
2. Redesign the strategy. At the same time, bank bosses need to create a strategy that places customers at the centre and prioritises consistency of return over the quantum of return. Understanding the downside risk of these investments will be mission critical.
3. Introduce new performance indicators. The return of the balanced scorecard that genuinely rewarded customer and community impact as much as financial return. Removing a bonus culture that rewards over only 12 months but looks at more modest incentives based on value creation over a 3 year + period.
4. Deconstruct the performance culture. Create a culture that acknowledges positive behaviours more than anything else. Remove the cultural structures that support the "win at all costs"
mentality. Encourage greater empowerment within local areas/cities/markets creating an active dialogue with consumers.
5. Create an open culture. Publish performance indicators and be open about where there are problems and what is being done to resolve them. If nothing else, the last 10 years has made the Banks be more open about their failings, although culturally there is a long way to go.
Chris Lorimer worked for Barclays for 15 years between 1990 and 2005, working in strategy, operations, marketing and latterly as a Director in Commercial Banking. He left the Bank to reconnect with his family and worked as a Director in 2 Further Education Colleges in Devon before becoming a management consultant. He can be contacted at firstname.lastname@example.org
Chris Lorimer is an
experienced consultant who has helped many organisations to grow through his unique 4 Ps approach.