Sunday, November 07, 2021

Banks Should Avoid Rabbit Holes

We have much work to do, little resources to get it done, and a short time to make it happen. So we should avoid doing things that don't benefit our stakeholders. Even following stakeholder primacy, to the non-believer, thinks it is an unnecessary pursuit that distracts us from delivering to shareholders.

That is what a bank CEO told me recently. My case in my book, Squared Away-How Can Bankers Succeed as Economic First Responders, was that pursuing stakeholder primacy mitigates one of the greatest threats to the community bank-relevance. If you matter to your stakeholders, you are relevant, maybe even important, to your employees, customers, communities, and shareholders. And that the disciplined approach to stakeholder primacy should lead to greater shareholder returns. Minimally, not lower shareholder returns.

But we are under pressure to do many things with our business model. Some urgent, some important, some not so much. I was reminded of this competition for our time and resources by my friends at Cross Financial who tweeted out the Eisenhower Matrix, whose namesake came from our 34th president when he quipped: "I have two kinds of problems, the urgent and the important. The urgent are not important, and the important are never urgent." The below chart was elevated in prominence by the Stephen Covey book The Seven Habits of Highly Effective People

But how do you identify the important? When thinking of this problem, it brought me back to Rotary International's Four Way Test for deciding what and what not to do: 1) Is it the truth? 2) Is it fair to all concerned? 3) Will it build goodwill and better friendships? 4) Will it be beneficial to all concerned?

Rabbit Holes

Back to rabbit holes. I propose the Four Way Test of Avoiding Rabbit Holes. A decision tree, if you will.

1. MUST you do it? If you are being compelled by law, regulation, accounting standard, contract, etc. to do something, then you must do it. You might not like doing it, but take that up with your trade association(s). Avoid arguments that you must do something that you, actually, are not compelled to do. Such as we "must" implement so and so because of some "non-compulsory" reason. This is the first decision point, and if you are compelled to do it. Just do it. Hard stop.

2. Is it consistent with strategy? I was recently on a call with a fintech that facilitates international B2B and P2P payments. It was a white label solution that can be woven into the bank's tech stack. It was cool. But is it consistent with the bank's strategy? When my firm discusses the direction of our industry, we make the point that there are fintechs that want to partner with banks for nearly every solution, customer facing or "run the bank" solutions. In most cases, many competing fintechs are available to help you out. But dial up your strategic plan. Is that customer experience solution consistent with the demands of your current or prospective high lifetime value customers? 

3. Will it benefit multiple stakeholders? And ideally, all stakeholders (employees, customers, communities, and shareholders). Today's employee will not feel purpose in their work if your culture is to maximize profit for the benefit of shareholders alone. And that employee will be a short-timer if that's your culture. Leaving you with the button mashers that consider you their nine to five and work solely for a paycheck. Will that employee seek and destroy unnecessary processes, maximize your use of technology, and deliver a superior customer experience? I sat next to a pretty savvy director of a community bank that says he became a customer, and later a director, because the bank commits seven percent of net income to community organizations. It wasn't the bank's technology or its capabilities to serve his business. It was their commitment to community. If you are considering a zero-sum investment, one that benefits one stakeholder at the expense of another, pass on that rabbit hole and instill discipline in those that propose strategic investments to find the win-wins. 

4. Will it protect the bank? Banking is a risk business and risks must be accepted, mitigated, or eliminated. Whatever risk framework you use, be it the Federal Reserve Board or OCC's risk categories, will what is proposed mitigate or eliminate the risks you chose not to accept? This can get murky, as strategic and legal risk are often in a bank's risk framework that the institution would like to mitigate (because eliminate is all but impossible, even for insured risks). So the person proposing you go down a rabbit hole may invoke "strategic risk" to convince you to go with them. For these instances, I propose calculating the likelihood of the risk coming to fruition. If you deem it to be an unlikely strategic risk that will take plenty of resources to mitigate, pass.

Let your competitors go down rabbit holes while you dedicate the resources to execute your strategy and protect your bank.

Here is a picture of the decision tree, as I see it. If you can't download the image and you want it, drop me a request and I'll send to you.

How do you avoid rabbit holes?

~ Jeff

Note: I would like to thank all veterans that stepped forward when asked to step in front of the rifle, drive over the roadside bomb, and sail in mined waters a Happy Veterans' Day.

And please consider reading my book: Squared Away-How Can Bankers Succeed as Economic First Responders

Ten percent of author royalties go to, who work to bring down the suicide rate among our veterans. 




Thank you!

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