Home Banking BREAKING NEWS: Banks Pass Their MoT and Are Roadworthy Again!

BREAKING NEWS: Banks Pass Their MoT and Are Roadworthy Again!

by internationalbanker

Mo MayetBy Mo Mayet, Founder & CEO, HB Ingram Mayet




If this headline is to be believed, it would imply banks are perhaps the safe haven we always believed them to be. Can this really be true? So soon after the events of 15 September 2008, triggered by the collapse of Lehman Bros, the wider ramifications of which are still being “played out” today. I am reminded of what Thomas Kilmann pointed out some years ago: “A quick fix may work for a machine but not for an organisation”. As such, surely it’s improbable for a whole industry to have achieved such a feat so quickly? So is the old adage “Don’t believe all that you read” applicable here? Let’s take a closer look, and form a considered view.

We’ll assume, just for one moment, the headline to be true. Task one for a bank is surely to convince its passengers (i.e., employees/customers) to remain loyal (stay with the vehicle) and trust their bank to have, this time around, picked a more sensible route (“road to success”) and one with a desirable “end-game” destination. So backing up this assertion by ensuring what passengers hear, especially early on re: the journey, doesn’t undermine this objective. To be clear, I love a bit of Led Zeppelin, but please don’t play “The Song Remains the Same” (1976) and/or tap into your back catalogue and regale them with Talking Heads:” Road to Nowhere” (1985) or Chris Rea: “Road to Hell” (1989). Hardly a “we’ve changed and for the better” message! It would simply remind passengers of previous, not necessarily happy, journeys shared, and most likely get this new trip together off to a terrible start. Please, banks, it’s time to finally bin your past record(s), and illustrate you’ve moved forward and truly have changed your tune, and for the better!

More seriously, but sticking with the driving metaphor, banks historically have had an almost obsessional preoccupation re: what vehicle was the optimal solution, and as such the one they ought to be driving. The choice being determined by clear, tangible and, of course, measurable criteria such as: overall size, chassis type, emission levels and shape. Having built or bought the vehicle and driven it for a defined period of time, a bank would then seek comfort by obtaining a piece of paper from an “expert” (a garage, in this case) confirming the vehicle continues to be certified roadworthy, having passed the necessary test (i.e., a MoT). The prevailing wisdom seemingly that by having a piece of paper with “Fit for Purpose” emblazoned on it represented a vindication of vehicle choice, and indeed validation, that a bank had got things right, that all was in order, and so passengers need not worry. Additionally, the decision to change vehicle was often encouraged or fuelled by a seemingly well-informed passenger in the backseat, who may perhaps have retained a vested interest in the route and destination chosen by the bank (i.e., consultants). Of course, in recent times, mandatory political and/or regulatory intervention has also had a huge influence on a bank’s vehicle choice.

Typically, banks have over the years created numerous, mainly quantitative-oriented protocols to, in theory, prevent large-scale, systemic bank failure. The underlying modus operandi often based around the application of “clever” mathematical-modelling techniques. Models were created by some of the best intellectual minds and as such (we were told) could not be defeated. Based largely on this premise, banks, until recently at least, were seen as respected pillars of the corporate world that people could trust to guarantee a secure and stable financial framework.

I hope it’s not overly harsh to say that, historically, banks have often been seen lurching from one organisation structural extreme to another, seemingly in a quest to find the perfect, correct, winning “end-game” answer. To the delight of MBA schools all across the world, the bank “swing meter of change” has been in near constant use. From globalisation to localisation, in-housing to outsourcing, universal (“one-stop-shop”) banking to regional/local (“boutique”) banking. Far be it from me to suggest it doesn’t matter which approach a bank adopts. However, an environment of ever-constant change is surely not the route to sustainable success. Over the years, vehicle changes became/have become so frequent that the change process itself has almost acquired business as usual (BAU) status within many banks. Changes were often completed with an unhealthy bias to the WHAT considerations and with great speed, thus enabling a bank to move on quickly to the next vehicle change. Sadly, as this approach was more based in science not art, it naturally and perhaps not surprisingly often had little or no regard for the people-related consequences! With WHAT matters deemed more the priority than WHO is doing the driving, the consequences of such an approach were painfully exposed by the events of September 15, 2008 (a.k.a., Lehman Bros collapse), and the subsequent fallout. As the systemic failure of the banking framework back then perhaps illustrated, the simple home truth is, with all its quirks and vagaries, you cannot model “Human Nature”. People, in times of stress, will behave in irrational ways and assist in creating a vehicle pileup.

The enduring reality is that there is no “magic wand….one-size-fits-all” panacea (never has been, and never will be), and so banks must stop their natural inclination to keep changing the poor old vehicle—a.k.a., the WHAT/HARD DRIVE (e.g., IT platforms, risk methodologies, organisational structures) and instead refocus and apply their energies towards improving the appropriateness, compatibility, competence of the WHO/SOFTWARE ( i.e., its PEOPLE, the key variable that can hugely differentiate it from the competition). I propose the notion that only with a greater focus here can a bank achieve long-term success. To truly effect sustainable and progressive change, banks must shift their primary focus to the makeup of the WHO (i.e., who is driving the vehicles on the roads)! Undoubtedly a far trickier subject matter, a more nebulous concept not as easily measured or analysed (to the nth degree) to create comforting absolutes and certainties of outcome. Surely, this is no doubt why banks have preferred to focus on the WHAT (science), not WHO (art).

Questions, of course, remain: Do the banks, even now, really get it? And, even if they do, are they able and willing to effect the changes necessary? Indeed, will they be free/allowed to alter their ways in the ways they need to in order to survive and prosper? Do they deserve to be afforded yet another chance to refocus and start “Doing the right things” and not seek comfort in “Doing things right”? In essence, can banks finally fix themselves and, like a leopard, change their spots? Yes, it’s possible, but they can’t do it all on their own.

O.K., so let’s roll the clock forward from the banking nadir of September 15, 2008, to the present day. After many years of government consultation (“thinking”) re: the future of the UK’s financial sector, what are the key changes proposed and being implemented that will ensure if/when MoT certification is granted to a bank; we know it really does mean something so that another near cataclysmic meltdown of the economic and financial framework does not occur. Well, here is a snapshot of what is deemed important to ensure UK banks return to “Fit for Purpose” status and remain there:

  • A much more onerous and rigorous regulatory environment (e.g., FPC, PRA, FCA), including greater accountability and supervision;
  • Segregation; split them into good/bad banks—with a suggestion, in some quarters, that having done so, a fence should be erected to illustrate the split, and that to ensure compliance, it should be electrified;
  • Create more competition; encourage “new entrant” banks. We’re already seeing a “back to the future” approach in the rebirthing of old bank names and brands (e.g., TSB, Williams & Glyn’s). Not sure if this smacks of being terribly “new chapter” banking;
  • End the excessive pay/bonus culture—errrr, as an aside, can I please mention the guaranteed “welcome on board” year-one compensation package offered (and strangely) accepted by Ruth Porat to entice her away recently from Morgan Stanley to join Google— c$70 million; or Anthony Noto’s “golden hello” of $61 million in Twitter shares as he joined as CFO from Goldman. Just saying…

…Plus the imposition of punitive bank levies and vetting of senior-banking executives.

Ummm…O.K., this all seems rather good, very rational, hugely detailed and frankly all stick, no carrot. If one wanted to reduce the efficiency of the UK’s banking business model, this list seems “Fit for Purpose”. You could certainly be forgiven, having read the above, to conclude that it looked as if the intentions were to disenfranchise employees/customers yet further from the banks. Indeed, make a bank vehicle even harder to drive and perhaps finally extinguish any lingering residue of love or engagement an employee may feel towards his or her bank.  

As the saying goes: Be very careful what you wish for! Referring back to Thomas Kilmann’s observation quoted earlier: If we treat banks like a machine and merely add yet more WD40, replace a few screws that were about to fall off, then there is no denying it could well effect some positive changes in the banks. But will they be the changes appropriate to facilitate, encourage, direct banks to ensure we maintain, protect, grow the UK’s status as a key centre for the global FS (financial- services) industry? To intentionally and/or inadvertently undermine one of the few industries for which we truly have world-class credentials (FS represents c12 percent of the UK’s GDP) cannot be the right approach.

By way of illustration, if we relate the proposed change proposals listed above to Herzberg’s “Hygiene vs. Motivators theory, as related to employees”, it would clearly suggest that, when implemented, they will not have the desired effect. Herzberg talks of “factors for dissatisfaction” in the workplace, examples of which are: company policies, supervision, work conditions, salary. He mused that to focus on eliminating dissatisfying job factors may create peace (temporary) but will most likely not enhance performance and concluded that where dissatisfaction prevailed then motivation could not. Mmmm…not a good start, eh….

As I am sure many readers will know, Charles Handy talks of something called the Sigmoid Curve; the essence of which quite beautifully captures and illustrates the vagaries and challenges of human nature. In short, he uses an S-shaped curve (laid out on its side) to talk around the need to reflect on your past and anticipate the future; of course, easier said than done! Taking one aspect of his illustration—he suggests the time to change is when you near the top of the S (i.e., before you start heading downwards to complete the S curve). So the time to grow/reorientate, etc., is when times are good and not, to be honest, where we are now (i.e., the bad times, where everyone needs and wants to change, and perhaps change is being prescriptively imposed!).

Now, clearly that boat of opportunity sailed some years ago; however, that doesn’t mean to say, “Let’s not bother as it’s too late”. Granted, the change process will be harder to achieve, but it’s most definitely worth doing. So, try to acknowledge, better understand and embrace the need to bring your PEOPLE with you. After all, your EMPLOYEES are also, quite possibly, your target or current customer base.

So, to paraphrase Handy: What can we learn from the past, and how do we proactively better prepare for the future, but this time with prioritisation towards the WHO/SOFTWARE considerations?!

Let’s have a brief look at a few of the WHO considerations that just may help a bank redeem itself in the eyes of its people, i.e., employees/customers: 

  • So, who’s “Fit for Purpose”? (A people audit.)
  • Where’s the “love” gone? What now defines an employer-employee relationship?
  • IQ vs. EQ….What’s most important?
  • What’s best? Doing things right, or doing the right thing?
  • Why unlearning is more important than learning!

So, who’s “Fit for Purpose”? There is both good news and bad news on this point. The bad news: no one is! But thankfully the good news is exactly the same answer! As cited earlier in this article, historical precedent leads us to conclude that focusing on the WHAT has never led banks to the nirvana of a sustainable and correct answer. So, it’s unlikely, therefore, to be the answer for today, and thus it’s improbable it ever will be! Mmmm…so what now? Well, perhaps banks should stop continually tinkering with the vehicle itself. Acquiring, on a full-time employee ( FTE)/contract basis, the right people to plug the skills gap is essential. Providing better training, coaching, education is all part of building an informed employee base that is ready for the fight ahead. In turn, there must be an improvement in the alignment of pay/reward to the behaviours regarded as desirable in a bank and to ultimately dig deeper into the bank’s psyche and build a core value system to form the heart of a virtuous not vacuous bank culture. To paraphrase slightly from Peter Drucker, “People-culture eats strategy for breakfast”, and as we all know, a hearty breakfast sets you up well for the day. Let’s prepare our employees for each and every day.

Where has all the “love” gone? What now defines an employer-employee relationship? Banks previously in an economic recession (“bear market”) could, and often did, rely on their employees to stay put. This “loyalty” perhaps had its origin more in apathy/risk aversion/lack of opportunity elsewhere than a genuine love of their employer. A sense that in difficult times the principle of “better the devil you know” was best applied. A common default position, taken by many employees, concluding that even the tough love afforded them by their present partner (i.e., employer) was, on balance, a better (safer?) bet than a start-up relationship elsewhere. However, in this more enduring double-dip economic downturn, there is a sense that this sentiment may well be on the wane. In the future, will banks need to keep a supply of “gold watches” in their coffers for the loyal band of 25+-year tenure employees? Errrr…probably not!

So, if the notion of a long-term, loving relationship between employee and employer is no longer something either party can rely upon or wish for, what has driven this change of expectation and desire in employees? Perhaps the following points have played a part:

  • A gradual erosion of some of the “pull” levers, e.g., no more final-salary pension schemes, see-the-world relocation packages, guaranteed bonuses;
  • Career being increasingly viewed as a bundle of experiences, with employees applying the principle of an HR employment benefits “Cafeteria Plan”;
  • A realisation that the notion of greater job security in being a FTE rather than a contractor is a bit of a red herring;
  • Social media’s ever-increasing impact on society: try having a career chat with most “normal” 19-year-olds of today. How do you foster loyalty with an employee base that behaves predominantly in a purely transactional way, has the attention span of c15 seconds and who firmly believes that long-term is, quite literally, tomorrow!

Of course, I am not suggesting all of the above is of the banks’ doing. Much of this change has been dictated to them by political intervention, economic and financial necessity to survive and a shift of societal expectation and understanding regarding what constitutes relationship. The origin of the changes is, of course, not important, but it is important that banks recognise the implications and redefine (in collaboration with their workforces) the employee/employer contract.

O.K., so moving on. IQ vs. EQ…what’s most important? The answer here is, rather unhelpfully, BOTH. Banks, quite correctly, have always looked to attract (with much success) and indeed retain (less success here) an employee base that is highly intelligent—as the perceived wisdom was, and appears still to be the case, that the higher a person’s IQ, the greater likelihood of them being a high-performing employee. The typical Anglo-Saxon, tried ‘n tested measures to determine this “fact” being GMAT scores, grade of university degree, etc. From primary school through higher education, graduate/fast-track employee programmes, first/second jobs, the key (rewarded!) measure of a person’s ability/success was/is purely based on analytical/quantitative/left-brain thinking. The reward structure is, of course, aligned on such measures, and this in turn reinforces/encourages/perpetuates a set of behaviours that ultimately becomes a hard-wired, proven way to advancement. Oops, then the “game” changes (let’s say you are now a top-end VP or director), and the measures of success then change and commensurately so does reward/career advancement. The IQ bit is now a mere given, and any greater level (in most, but not, all cases, I appreciate!) of intellectual prowess above the mean level is now deemed superfluous, and so unrewarded, unappreciated. The next level of banker “Candy Crush”, if you wish to play, has a different operating system; and annoyingly, unless you’re lucky, no one tells you that the nature of the game has altered. In this game, you more need to feel your way through it as much as you do think things through. Welcome to the more nebulous world of EQ (a.k.a., emotional intelligence—thanks to Daniel Goleman), with its emphasis on taking initiative, showing empathy both up/down the hierarchy, being adaptable and demonstrating persuasiveness both with/without line authority to do your job. For some employees, the transition is seamless and intuitive; for others, it represents a training need that can be successfully completed, and sadly for some, it represents the end of the road re: career advancement. The subject matter of IQ vs. EQ is both deep and broad and as such has undoubtedly profound implications in the workplace. Again, there is no single right answer here, but that shouldn’t stop us from trying to figure out a better way of harnessing both elements in our banks.

So what about Doing Things Right, or Doing the Right Thing? Surely the least contentious point in this article is that a preoccupation with analysing things to the nth degree, encouraging box-ticking, et. al., ultimately contributed to distract banks away from doing the right thing and led to the unprecedented meltdown of the global financial markets back in September 2008. The firm belief that there is absolutely no way that events X, Y, Z, etc., will all occur at the same time. Why? Well, because it just won’t…it’s never happened before…we have super-rigorous models and processes in place to ensure it cannot happen. The flaw in this “cunning plan” was that banks were full of left-brain thinkers, who in turn built the models and devised the risk-mitigation processes. Without being overly harsh, were they perhaps not the most empathetic of individuals and, as such, were oblivious to the alien concept that HUMAN NATURE might, in times of stress, override the rational economic-man approach and generate a pattern of behaviour that is unexpected and wholly unaccounted for in the models and processes.

A short illustration: at the most basic level, banks typically and simplistically balanced their cash book at the beginning and end of a day, a bit like a cashier in a branch but obviously with materially bigger numbers and potential consequences if mismanaged. This was certainly not unusual behaviour at/around the time of September 2008. So, if a bank was asked for a high percentage of its cash holding at say 14.40 (GMT), it just wouldn’t have been possible! Oh, no one’s ever asked us to pay out/back at that time…well, I am asking now, Buddy!!!

The often, at times, naive reliance on box-ticking, regulations and controls applied and monitored, often by people less informed and experienced than the people they’re auditing. A “soft-touch” regulatory environment, an emphasis on administration over people-based matters, gradually encouraged and rewarded behaviour that is focused on the management of things. Not allowing enough leadership of people, and certainly not a diversity of thought that created challenge and greater likelihood of fostering an environment that more often than not did the right thing….

Finally, why unlearning is more important than learning! So, just as the banking fraternity gets close to understanding and executing successfully on e-Com channels, somebody has “moved the goalposts”! The social-media train has reached the station, and now banks have to strategize around and execute upon (and quickly) what is their digital-channel capability (i.e., m-Com, social media, wallets, clouds) and grapple with understanding what it will mean in terms of cost (e.g., regulatory, infrastructure, education) and indeed where the related new revenue streams may unfold. Assuming such considerations are dealt with then perhaps within five years we can most probably say goodbye to much of the paper, bricks and mortar and existing proprietary systems and infrastructure. Consumers’ plastic will start to melt away, and its hello COMMERCE in all its facets (i.e., e-Com, m-Com, social media, clouds, wallets!). There is almost as much for banks and their employees to unlearn as learn here. Legacy IT infrastructure and the makeup of most traditional banks’ workforces means there is much work to be done to compete with each other, let alone the threat faced by the new-entrant banks. Then things get worse still for the banks; as shown in a recent survey, conducted by YouGov and law firm Pinsent Curtis, UK’s largest High Street lenders face a greater threat of losing customers to PayPal than new “challenger” banks. Maybe banks must in the near-term buy-in (FTEs) or rent (contractors) to compete here and now, as there is simply too much unlearning (and learning) to be done.

The, perhaps disappointing, reality for banks is that “truth is impossible, and therein lies the truth”. There must be a recognition and acceptance not to strive anymore for complete answers, as there is no such thing. The new mantra for all banks must be less preoccupation in all things VALUE and to refocus on being a more VALUES-DRIVEN vehicle, with a clear emphasis on the primary “drivers” of sustainable success—i.e., its people.

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1 comment

Darren Fisher May 20, 2015 - 4:55 pm

Nice to read an article with a distinctive viewpoint as opposed to the usual drab published


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