Banks accelerate performance through culture change

February 2016 | SPOTLIGHT | BANKING & FINANCE

Financier Worldwide Magazine

It is clear that banks and financial services firms must change their cultures if they are to regain the trust they have lost since the financial crisis. But while the majority of banks are talking about culture change, only a few are unlocking its full potential – not simply to minimise bad conduct but to accelerate business performance.

To meet the ultimate goal of accelerating performance, the effort must be broad and it must go deep. It must be broad in the sense that it reaches across businesses, functions, geographies and all levels of the organisation to align public purpose, values, strategy, incentives and behaviours. It must be deep in the sense that it reaches down to the fundamental assumptions, beliefs and motivations of each individual so that employees personally embrace the new culture and live it daily. Unless banks can comprehensively remake their cultures, especially at a time when many of them are adopting new business models, they will likely produce disappointing results – and the potential for malfeasance will remain as high as ever.

Going broad

Consider how a global bank, plagued by a series of scandals, responded not by simply establishing more controls but by embedding values in a much broader context. Under the leadership of a new chief executive officer, Bank A, as we will call it, began with a series of road shows in which leadership met with small groups of managing directors and made the case for change. Next, the bank’s top 200 leaders from around the globe convened to determine what needed to be done. They concluded that the bank should radically adjust its business model, develop new leadership roles and skills, listen intently to the voice of the client, and reconfigure structures and processes. Most importantly, they determined that they would integrate all of those elements into a unified, purposeful culture.

They moved swiftly to adjust their strategy and business model, reducing exposure to capital-intensive and regulatory-heavy businesses like trading and investment banking. They focused instead on less risky businesses that provide steadier streams of income and less temptation to bend the rules. In addition, they eliminated hundreds of intrabank service-level agreements, moving from a culture of counterparties to a culture focused on customers.

To get the bank’s top 250 leaders in step, two-day off-site meetings focused on culture and values were held in each region. Subsequently, all 250 leaders convened for three additional days to learn how to model the bank’s values. The programme was then rolled out to the next tier of leaders, some 4000 in all.

The bank also altered structures and processes, most strikingly its approach to performance reviews. These year-end employee assessments are now weighted equally between financial performance and behaviour, a ‘50/50’ approach long favoured by many regulators.

To refocus on customers, Bank A created in its wealth management business a new role devoted entirely to managing client satisfaction. In addition, a chief investment officer and his group now monitor the capital markets, foreign exchange and the like on a minute-by-minute basis to help wealth management clients optimise their portfolios.

Recognising that the strength of the culture is a leading indicator of how well Bank A will perform, leaders created a set of ‘health metrics’ focused on customers, employees, operations and public perceptions. In the four years since Bank A embarked on its sweeping culture change, performance against all of the health metrics has steadily improved. And the belief that health predicts wealth has certainly proved true – in that four-year period, the bank has created 30 percent more shareholder value than its nearest competitors.

Going deep

To understand what it means to go deep, consider how a major consumer banking organisation we’ll call Bank B approached it. Over the years the bank had grown through acquisitions, resulting in a multitude of legacy cultures and inconsistent customer experiences spread across a variety of consumer businesses. To unify the brand and the businesses, win a larger share of wallet and create a consistent ‘customer-first’ mindset — including a focus on ethics driven not by fear but by a clear purpose — the bank embarked on a top-to-bottom culture change.

Bank B’s senior executives began with a culture assessment to diagnose where the current culture stood. They then asked themselves a simple question – based on this assessment, what is the likelihood that we will be able to execute on our strategy? They concluded that the bank had some of the desirable elements in place, but to realise the full potential of the strategy everyone from the CEO down to frontline employees had to shift their behaviour.

But making sure that the desired culture takes deep root in each individual presents some significant challenges. For example, personal change is just that — personal. Individuals cannot simply be ordered to change; they must genuinely embrace it or they will continue acting on deeply ingrained habits.

To ‘unfreeze’ old habits, Bank B conducted workshops in which individuals became aware of their habits and experienced working in new ways. For example, the bank’s desired culture requires a high degree of collaboration across regions and functions, yet most of its employees had been conditioned by the organisation’s longstanding ethos of independence. Nevertheless, through experiential learning in a series of team exercises, even the most independently minded individuals began to feel the advantages of a highly collaborative culture.

Bank B immersed its senior executives in the programme so they could understand their role in living and leading the culture. Next, a group of internal facilitators was trained to take the workshops to all managers. The workshops enabled the managers to then engage their teams in monthly discussions of the bank’s culture principles and apply those principles to their jobs. For example, the principle ‘be here now’ was intended to counteract a familiar phenomenon – most employees are so busy multitasking that they give customers (and colleagues) short shrift, putting them off or passing them on to someone else. So, in a brief conversation led by the manager, team members discussed what actions they would take to reduce distractions and focus on building relationships. These conversations, though brief – only 15 or 20 minutes each – deeply engaged the participants and resulted in new behaviour.

Like Bank A, Bank B introduced a cultural dimension into each of the company’s people processes – hiring, onboarding, performance reviews, compensation, promotion, development and identification of high-potential individuals. Henceforth, employees would be judged not just on what they did but also on how they did it.

In addition, Bank B, again like Bank A, measures how well the culture is being lived from the customer and employee perspectives. Leaders have already seen improvement along each of those dimensions. And having driven culture change deeply into the organisation and its people, Bank B’s leaders are confident that the magnitude of the financial returns will reflect the magnitude of the bank’s transformation.

Lessons learned

The lessons to be learned from these two banks are clear – change begins with purposeful leadership that models the culture and spearheads the behavioural changes that are required. Culture change must also be broad, deep and focused on positive change, not negative reinforcement.

The reward is better performance – a healthy culture that unlocks the full potential of new strategic, operating and organisational models. By putting these lessons to work, banks can shape a culture that is not only healthy but sustainable, built to withstand short-term pressures, endure through the inevitable changes in personnel that take place over time, and thrive under any regulatory regime.

Paul Gibson is a partner and Colin Price is executive vice president and managing partner at Heidrick & Struggles, and Bill Parsons is a partner at Senn Delaney, a Heidrick & Struggles company. Mr Gibson can be contacted by email: pgibson@heidrick.com. Mr Price can be contacted by email: cprice@heidrick.com. Mr Parsons can be contacted by email: bparsons@senndelaney.com.

Paul Gibson and Colin Price

Heidrick & Struggles

Bill Parsons

Senn Delaney