Four years after Lehman Brothers filed for Chapter 11 bankruptcy and became the first major casualty of the credit crunch, banks have finally committed themselves to serious structural and cultural transformation.
It’s hard to understand why it has taken so long. A new wave of banking scandals including the manipulation of UK LIBOR interest rates, JP Morgan’s huge derivatives losses, and Normura’s insider trading revelations has re-ignited the political and public debate about banking. This makes recent statements from banking leaders about transparency, sustainability and responsibility very timely, but they are also long overdue. Does it really take two or three years of soul-searching to respond effectively to the credit crunch and economic fallout that followed?
Some banking executives have the defence of being new in the job. Deutsche Bank’s new strategy is the result of just 100 days of reflection and internal debate led by the new management pairing of Anshu Jain and Jürgen Fitschen, who took over the reins from Josef Ackermann in June. Similarly Barclay’s new man, Antony Jenkins, who wants to turn the bank into a go-to brand, hasn’t been in the job 30 days yet.
Many others however have had plenty of time to define a new approach and take the lead in addressing banking’s systemic issues, but shied away from doing so. Now they are queuing up to explain their transformational plans. What has changed is that banks have finally accepted there won’t be a strong economic recovery any time soon, making a wait-and-see strategy untenable. Faced by rising costs, increased capital requirements, lower returns and weak demand, banks have had to act.
Most now acknowledge a fundamentally different business model is required, one that is focused on clients rather than products. They have also realised that clients and regulators expect banks to demonstrate a very different type of leadership in order to win back their trust and respect.
It’s no surprise that the past decade saw investment bankers occupy the top jobs at many banks. With the focus on revenue generation and a culture that feted entrepreneurial skills and ‘star’ bankers, there was limited interest at banks in developing and promoting executives with broad management experience; functional skills were more important.
Arcadia’s work with financial institutions has revealed how banks have fallen far behind other industries in developing a sustainable leadership franchise, despite investing heavily in learning and development. Many have now identified this oversight as new management teams have delved into their talent pools for the first time.
Those who have decided to tackle the issue have gone back to basics. We have helped their senior leaders and managers identify their own motivations and preferences, as well as see how these impact their teams. With a better understanding of self, these leaders are able to develop more effective communication and coaching skills – this is needed to help them and their teams achieve a higher level of performance. Using the latest diagnostic tools to surface issues with senior teams, we have enabled clients to frame a new leadership model based on trust and accountability.
Such leadership skills will be essential if banks are to succeed in their ambitious change strategies. Employees in particular – but also clients, investors and regulators – need to be convinced that banks can reinvent themselves, that risk and reward can be aligned, and that growth can be achieved in a more balanced, sensitive way.