The Top Challenges Banking Leaders Face—and How to Conquer Them

By Stephanie Peskett, Senior Vice President and Partner, BTS

In May 2021, my company published research highlighting how banks had changed during the pandemic. The report revealed how banks had deepened their foci on customers and employees, accelerated their digital strategies and reinvented their relationships with risks. The crisis sparked a transformation in financial services.

Now we find ourselves in yet another time of crisis. Attention is on central and consumer banks, as interest-rate hikes¹ intended to curtail inflation challenge the markets and raise fears of a global recession. Amid the turmoil, banks must demonstrate their commitments to putting communities and customers at the center of their strategies—even when the going gets tough.

We partner with learning and talent leaders at many of the world’s largest banks. Together, we work through the industry’s biggest challenges and grapple with the most difficult questions banks must answer to thrive during the current economic crisis and beyond. Here’s what we’ve learned.

How can people leaders help banking organizations maintain the positive shifts achieved in the wake of scandals and COVID-19?

Long before the coronavirus emerged, scandal was the pandemic that swept through the banking industry: fee overcharges, mis-sold products, noncompliant financial advice and generally poor regulations. These blunders eroded customer trust and employee morale. Chief learning officers (CLOs) and chief people officers (CPOs) tackled the daunting work of transforming culture, building trust and driving accountability.

Executives and employees at all levels demonstrated their fervent desires to put their trust and hearts back into banking. They engaged in bold and exciting initiatives, leading with purpose, owning their roles in customers’ crises of confidence in banks and earnestly looking to create positive changes for their clients.

This happened while CLOs were leading efforts to reskill the workforce as branch footprints shrank globally—by 20 percent in the United States² and 60 percent in Nordic countries—and banks shifted to online services.

In 2019, reform in the Australian market³ was gaining momentum just before the pandemic hit. When banks pivoted to respond to the pandemic, people throughout the industry could name something they were proud their banks had done for customers. In many respects, this applied what was learned from the earlier banking scandal to the COVID-19 crisis. At the same time, the acceleration of the years-long shift to digital positioned banks to operate seamlessly in a world in which employees and customers were forced to stay home.

Interest rates have been rising⁴ in the US, with no signs of stopping. Increases have been swiftly passed on to customers, while banks achieved record shareholder returns and profits in 2022⁵.

So, what’s the issue?

We can’t forget that trust in banking is a fragile thing. Now is not the time to be complacent about the role that trust plays in a bank’s success. Some—though not enough—banking CLOs and chief technology officers (CTOs) are taking stock of whether pre-coronavirus lessons have landed sustainably, demonstrating the due diligence in people practices that the government investigations recommended (such as Australia’s Royal Commission’s recommendations⁶).

Why hasn’t this caught the industry’s full attention? The first reason is attrition. In 2019, many CLOs; senior directors of capability, culture and people; and senior employees responsible for this work left their organizations, creating discontinuity and risks for banks. The second is distraction. First, it was COVID-19. Now, it is the economic downturn. Beyond that, banking will gravitate toward “the next big thing”.

What’s the fix? Dust off the remedial-action plan that led to change in 2019 and refresh the focus on trust. Ensure there’s a strategy to retain the gains of recent years and minimize the impacts the economic crisis could have on the bank’s integrity, customer trust and success.

How can banks simplify complex work without making it more abstract and confusing for bankers?

Everyone in the industry wants to turn bureaucratic banks into agile, customer-oriented profit engines. As a result, making the complex simple is a primary goal in every part of the bank. For example, many CLOs and CTOs are working to simplify leadership expectations and cultural frameworks (values, behaviors, principles, purpose and so on).

Within these frameworks, a typical goal is to move from five to seven themes to three primary themes. The challenge is that, too often, the three primary themes end up encompassing at least as much as the previous expectations, sometimes more. Consider this recent example: A bank began with the “set the direction” pillar. It was intended to be a simple concept. But after rounds of iterations, the pillar ended up folding in terms of leading change, shaping strategy, creating shared purpose, seeing the future and changing the business model. All of these were important to the strategy. But the result was a complex mess for people trying to translate the themes into their day-to-day work.

These kinds of missteps have leaders and their team members expressing confusion and frustration, such as:

• “My line manager gave me just three of these to focus on, but they all feel huge. Where do I start?”
• “The themes are quite general. How do I relate these to my actual job?”
• “I’m really not sure if my career is on or off track when I look at this framework.”
• “These feel like they’ve been written for someone else. There’s too much corporate jargon.”
• “These are just headlines and nouns on a page. How does this help our customers?”
• “That’s all good and well, but what are my development options again?”

Developing these frameworks is important, but to inspire true change, the plan must be more than simple—it must be real, relatable and role-modeled.

1. Make the framework real by using moment-based assessments. These are simulated scenarios modeled in a person’s day-to-day work, with all the tensions and challenges he or she will face living up to the leadership expectations and cultural framework. This will demonstrate what greatness looks like in his or her specific role and codify the strategy effectively.

2. Make it relatable by using the assessment to give on-track and off-track feedbacks that are specific and enable people to take control of their learning and growth.

3. Make it role-modeled by supporting leaders to practice and become fluent in giving feedback related to the specific leadership framework of the business instead of just offering leaders generic feedback training.

These approaches are highly effective in ensuring frameworks are consumable, easy to understand and aligned to the real workflow in executing a bank’s strategy.

How can banks agree on expectations for culture and leadership faster? 

Collaborating with top leaders to define what “great” looks like, creating a map to get there and leading efforts to ingrain these values into the organization’s culture are some of the CLO’s most important responsibilities.

This is noble and fascinating work. It is also expensive, time-consuming and rife with pitfalls. Typically, a huge range of stakeholders emerge in the process; the number of opinions and rounds of stakeholder discussions to get to alignment seems endless. We estimate it costs an organization between $750,000 and $1.3 million in internal resources, including multiple meetings of senior HR (human resources) leaders, executives and multiple stakeholders, to sign off on a statement of mission and values.

Another issue is the time it takes—often nine to eighteen months—as leaders prioritize other work. Usually, resources are gone when it is time to go live or a new budget cycle starts, and investment targeted for instilling values is redirected. In addition, the drawn-out process can undermine the project, as executives are perceived as dithering over something as fundamental as values, leadership and culture.

To help a bank avoid common problems, it can be beneficial to seek outside perspectives. This can be achieved by bringing in external advisors, coaches and facilitators—called the “Ex-Factor”. By engaging with external partners, individuals may feel more comfortable sharing their honest thoughts and ideas. Furthermore, since the facilitator is not constrained by the bank’s hierarchy, executives may be more easily challenged, allowing for quicker alignment. This approach also allows HR teams to concentrate on the important tasks of reshaping people processes, workflows, systems and behaviors. Ultimately, this can help the bank become more successful.

How do banks encourage greater diversity and equity without undermining belonging and inclusion?

The battle to attract, retain and welcome diverse employees is escalating as financial services compete against other industries for talent. Over the past two years, we’ve seen banks recruit a record number of diverse HR, strategy and customer team members away from tech and telecom (telecommunications) companies.

To attract discerning young talent, banks need to have positions in reconciliation, social justice, DEI (diversity, equity and inclusion) and ESG (environmental, social and governance). Banks know this and are working to implement DEI strategies to empower every employee to contribute fully and create true empathy for customers’ needs.

However, the issue is that, too often, it seems as if people in banking are being taught to “know” what DEI is and then “comply” rather than “feel” that DEI is who they are, what they do and what they all want to lead toward day to day. One of the most disparaged groups in banking today are those labeled “pale, male and stale”—the demographic most likely to be in leadership at these institutions. The challenge is that members of this demographic (the leaders) are often afraid to get it wrong, speak up and challenge perspectives.

Bank CLOs and CTOs have key roles to play in coaching executive teams on how to position DEI. Companies that frame DEI as a way to understand someone who is “different from me” miss the opportunity to make DEI leveling, creating a culture of people who look past stereotypes, transcend differences and build connections at the human level.

Each bank’s approach to this challenge will differ depending on the maturity of the business, but what frequently undermines DEI-strategy execution is the institutionalized lack of psychological safety in banks. Shifting this is no easy feat. Mindsets change only with human-level learning, feedback and experimenting with new ways of leading in open and vulnerable ways.

How can a CLO develop a commercially savvy, winning mindset in a workforce that is already exhausted?

The learning experiences during the pandemic were often experimental and, frankly, chaotic—too many short, sharp sessions designed to pick people up and snap them back into action. This approach is seductive because it gives the learner a quick boost. People walk away feeling better and with something new to talk about for 72 hours. But the benefit is minimal; ironically, learners have reported feeling burned out by the many sessions intended to help them avoid burnout⁷. Constantly changing channels between “learning” and “work” can be exhausting.

Our research into mindset shifting shows that people will experience four clear stages and several specific practices that must be followed to create genuine behavioral change. In a world in which so much learning is available, the real value for an organization is when people go deeper into something meaningful. The first step is to challenge assumptions and ask what we need to unlearn to make our learning experiences effective again.

The banking industry continues to play a leading role in supporting communities and enabling people, small businesses and organizations to thrive. The financial-services industry’s positive impacts will only continue to grow. Differentiators across competing banks will depend on the work of CLOs and CTOs who apply lessons learned from previous crises to current situations while preparing for the inevitable unforeseen tests to come.

References

¹ CNBC Select: “How increasing interest rates could reduce inflation, but potentially cause a recession,” Trina Paul, May 3, 2023.

² Draup: “Navigating the Future of Banking with a Digital Workforce,” Kishor Venkatesh R, September 27, 2021.

³ Parliament of Australia: “Banking System Reform (Separation of Banks) Bill 2019.”

⁴ CNBC: “Fed raises interest rates half a point to highest level in 15 years,” Jeff Cox, December 15, 2022.

⁵ McKinsey & Company: “McKinsey’s Global Banking Annual Review,” December 1, 2022.

⁶ Royal Commission: “Final Report: The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry,” February 4, 2019.

⁷ SmartBrief: “3 strategies for helping leaders extinguish collective burnout,” Stephanie Peskett, April 5, 2022.