Article 3: Is the Culture of Banking Broken?

For an introduction to this series of articles, please view Why Banks Should Focus on Culture, Now More Than Ever. See also Article 1 and Article 2 in this series.

Today there are numerous discussions in newspapers, business journals and government corridors chanting the mantra that the culture of banking is broken.  They cite examples such as the mad rush into derivatives and other risky investment vehicles, obscene bonuses paid to bankers, the endless search for acquisition targets in order to expand scope and scale, the lack of focus on customer service, the retreat from lending, and the obsessive focus on internal profits as opposed to providing a public service.

Well, the culture of banking has changed significantly over the past 40 years, and based on the state of the global economy, not for the better.  But if we really understand what creates corporate culture in the first place (internal business processes and the behaviour of the leadership team) we would realize that we now have the culture we created.  Whether by design or default, it was created by choices made concerning business processes and leadership styles!

Changing Processes: Over the past 40 years many of the internal business processes in banks and financial institutions have changed dramatically.  Processes focused on credit risk assessment and processes steeped in the ethos of “stewardship of other people’s money” have given way to new processes focusing on deal making, profit maximization, product development, advisory services and asset securitization.

A major shift was from the skills and processes of portfolio lending to the more lucrative generation of new products and services in order to create additional revenue streams. This was to prove to be perhaps the single most significant change in the culture of banking, and brought with it a fundamental shift in priorities, values, systems, rewards, and viewpoint.

The process of originating debt was no longer just to serve the needs of the borrower, but was now perhaps more to serve the needs of the investor. Originate-and-hold had become originate-and-sell, which eventually became originate-to-sell. Critically, banks had also learned that the faster they could originate and distribute their paper, the better the return on capital employed. A new element thus entered the commercial banking culture and lexicon….speed.

Hiring processes also shifted dramatically. Rather than hiring experienced individuals to develop and manage departments, banks began to aggressively poach whole teams from rival institutions.  When a whole team migrates to a new bank, they bring their culture with them!  And many times they negotiate hard with their new bosses to be left alone to “do their jobs – make money for the bank”, making it clear from the outset that they don’t want to be part of the bank culture.

Another large set of processes that shifted during this time was training.  The fundamentals of credit and risk, as well as management training all but disappeared in the banks, being replaced instead with sales training, negotiation skills and profit maximization training.

Leadership Shadows: During this time period the profile of those in leadership positions changed dramatically as well.  Rather than a diverse representation of all the various banking functions and disciplines, top teams became more and more populated with investment bankers and rain-makers.  The management and leadership qualities of the David Rockefeller era were replaced with the brashness of the likes of Richard Fuld and the greed focus of Fred Goodwin and others. What was valued in leadership style switched from one extreme to the other.  This trend followed the “cult of the charismatic leader” syndrome so prevalent in big business during the hectic growth years of the 80’s and 90’s.  Thoughtful and inclusive was replaced with loud, charismatic and aggressive.

In addition, the notion of a leadership team aligned around a vision of public service and sharing a set of common values was replaced with a view that “this is a jungle and the biggest and meanest will survive”.  Stress and internal politics were the environment senior managers had to live with, or get replaced.  And it became a 24 by 7 global business where speed was the forcing function and profit the only yardstick.

And big deals were happening at all hours day and night.  Many believed the large amounts of money paid out in salary and bonuses compensated for the stress and long hours, but the children who rarely saw their banker parent didn’t always agree.

With a new set of internal processes and a reconfigured leadership ethos we wound up with a banking culture radically different. This whole process of banking culture change was further accelerated (some say caused) by the systematic dismantling during the 1980’s and 90’s of the Glass Steagall legislation and the wholesale lack of accountability on the part of the regulators.

As a result, like it or not, we have the banking culture we created.  The good news, however, is that it’s possible to reshape it again, this time by design, not default!  After all, unless banks take the accountability to create their cultures by design, the regulators may try to mandate a banking culture.  The worst of both worlds!

The next article in this series: What It Takes to Reshape Corporate Culture, focuses on what to do and not do when trying to reshape culture to better align with the organization’s strategy and structure.

About johnrchildress

John Childress is currently Visiting Professor in Strategy and Culture at IE Business School in Madrid and a pioneer in the field of strategy execution, culture change, executive leadership and organization effectiveness, author of several books and numerous articles on leadership, an effective public speaker and workshop facilitator for Boards and senior executive teams. In 1978 John co-founded The Senn-Delaney Leadership Consulting Group, the first international consulting firm to focus exclusively on culture change, leadership development and senior team alignment. Between 1978 and 2000 he served as its President and CEO and guided the international expansion of the company. His work with senior leadership teams has included companies in crisis (GPU Nuclear – owner of the Three Mile Island Nuclear Plants following the accident), deregulated industries (natural gas pipelines, telecommunications and the breakup of The Bell Telephone Companies), mergers and acquisitions and classic business turnaround scenarios with global organizations from the Fortune 500 and FTSE 250 ranks. He has designed and conducted consulting engagements in the US, UK, Europe, Middle East, Africa, China and Asia. Currently John is an independent advisor to CEO’s, Boards, management teams and organisations on strategy execution, corporate culture, leadership team effectiveness, business performance and executive development. John was born in the Cascade Mountains of Oregon and eventually moved to Carmel Highlands, California during most of his business career. John is a Phi Beta Kappa scholar with a BA degree (Magna cum Laude) from the University of California, a Masters Degree from Harvard University and was a PhD candidate at the University of Hawaii before deciding on a career as a business entrepreneur in the mid-70s. In 1968-69 he attended the American University of Beirut and it was there that his interest in cultures, leadership and group dynamics began to take shape. John Childress resides in London and the south of France with his family and is an avid flyfisherman, with recent trips to Alaska, the Amazon River, Tierra del Fuego, and Kamchatka in the far east of Russia. He is a trustee for Young Virtuosi, a foundation to support talented young musicians. You can reach John at john@johnrchildress.com or john.childress@theprincipiagroup.com
This entry was posted in corporate culture, leadership. Bookmark the permalink.

One Response to Article 3: Is the Culture of Banking Broken?

  1. Pingback: Why Banks Should Focus on Culture, Now More Than Ever | John R Childress . . . Rethinking

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s