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.