For Banks, Self Assessments Are Hard

Self assessments are hard, period. Not just in banks. But since this is a banking blog, let's focus there.

Strategic plans should include a fact-based self assessment. Some call it a situation analysis, others an environmental scan. They usually include a SWOT, which some people dislike but I find the vitriol around a SWOT to be mostly related to them not being honest or laundry lists of things the management team plan on doing nothing about.

Strength: The Management Team. Which for some might be true. Is it supported by low turnover rates of top performing employees, deeper relationships with customers, superior financial performance?

I recognize that everything can't have a SMART goal (specific, measurable, aggressive yet achievable, relevant, and time-based). But if you are going to say your "culture" is a strength, I'm going to ask why, and what does that get you.

So should you. 

Culture is something that I recently focused on during a couple speeches (virtual, of course) on creating alignment between your culture and strategy. Because culture is the environment you create that promotes or inhibits execution. Do you have a culture of innovation, empowerment, and positive accountability?

Most financial institutions would like to have such a culture. Because that is the environment that can lead to rank-and-file employees that recognize a need, be it a product or service, among your most profitable customer cohorts, and makes a business case for it (innovation and empowerment). That environment can lead to a project team with diverse functional expertise that is tasked with implementation, and not in six to twelve months (positive accountability). 

In my talk about linking strategy and culture, I finished with the following "What Now":

1.  Adopt a clear strategy that maps where you are to where you want to be.

Imagine that.

2.  Articulate the culture you want, and perform an honest assessment of the one you have.

No hubris please.

3. Identify the initiatives you must take to align strategy, culture, and accountabilities.

Positive accountabilities whenever possible to maximize the performance of those under your charge. See my post on this here. 

If you build the culture you want, you will likely perform a fact-based self-assessment with the ability to capitalize on your bank's strengths and fix or avoid the weaknesses.

~ Jeff

Not a Session at Acquire or Be Acquired: Culture

I attended Bank Director's Acquire or Be Acquired conference two weeks ago. The buzzword of the show: Culture.

When Raphael Reznek, CIO of Mascoma Bank, spoke about the biggest challenge to launch online account opening: "our internal culture". When Mike Butler, CEO of Radius Bank, spoke of technology experimentation and implementation: "you have to change the culture in the company". And in a session titled Advice and Counsel for First Time Acquirers, Bob Monroe of Stinson LLP said: "Being able to fit your culture in with the seller's culture is extremely important, because you'll have a flat tire running down the road."

If I asked you to write your definition of culture in the comments, would yours match others? Because when I hear the term, I don't know what people are talking about.

I do recognize that whoever talks of culture, generally thinks their culture is superior to yours. Except Raphael, who at least was reflective about it. I should note that Raphael has not been at his bank very long, and he is not from the banking industry. So it was easier for him to objectively assess the weaknesses in his bank's culture and address them. It is not lost on me that their CEO is also from outside of the industry and relatively new to the bank. 

Mike Butler of Radius, although a lifelong banker, came from outside of the region and implemented a business model and cultural change at his bank with new management and a "fast fail" innovation culture. Mike is from Cleveland. And surprisingly a Yankees fan. In Boston. #resilience

There I go. Culture, culture, culture. What the heck do I mean?

Culture Defined

Merriam Webster defines culture as:

1.  The customary beliefs, social forms, and material traits of a racial, religious, or social group. Also, the characteristic features of everyday existence (such as diversions or a way of life) shared by people in a place or time. Such as popular culture. Or Southern culture.

2. The set of shared attitudes, values, goals, and practices that characterizes an institution or organization. Such as a corporate culture focused on the bottom line.

3.  The set of values, conventions, or social practices associated with a particular field, activity, or societal characteristic. Such as studying the effect of computers on print culture, or changing the culture of materialism over time...

4.  The integrated pattern of human knowledge, belief, and behavior that depends upon the capacity for learning and transmitting knowledge to succeeding generations.

Did you know that "Culture" was Merriam-Webster's 2014 word of the year? Because it was the most searched for term. Meaning so many of you, like me, had to look it up because we had no idea what people meant when they talked culture. In this 2014 New Yorker piece, editor Joshua Rothman wrote: "institutions that drone on about their 'culture of transparency' or 'culture of accountability' often have neither."

Poster Child For Cultural Disconnect

Look no further than Wells Fargo. Their "toxic sales culture" started with Norwest, the actual buyer of Wells Fargo even though they adopted the iconic name when they executed their "merger of equals" in 1998. I have a lot of air quotes in this post. 

In this 2000 CNN Money piece, which I'm confident long-standing Wells execs would wish you didn't click on, Wells is said to have a "flourishing and decidedly 'functional' corporate culture". Driven by Norwest's and the resulting Wells' CEO Dick Kovacevich, who was "obsessed with cross-selling". At the time of the article, Wells averaged 3.4 products per household, and Kovacevich wanted to drive it to eight.

Boom! Fake accounts. 

Do I think Wells' executives wanted the culture that emerged? No. But read the practices that resulted from Kovacevich's obsession. This culture, and the practices that emerged from it, got John Stumpf and Tim Sloan fired. 

Culture Defined Part II

Culture, as I would define it, are the unwritten boundaries that your bank operates under that drives decision making, even when executives or supervisors are not the ones deciding. Meaning that when a branch manager, or a teller, makes a judgment decision, they do so in the context of your bank's culture. 

I think your aspirational culture can be written. And we often see this in strategic plan values statements. But a written description of the culture you are trying to create is meaningless if your leaders don't consistently practice it, hold people (including themselves) accountable to it, and align policies, procedures, and incentives to be consistent with it. Having daily coaching sessions on products sold would be inconsistent with a culture of doing what's right for the customer, right? I'm not smart enough to be the only person that would recognize this.

In kicking off strategy sessions, my firm reviews some inconsistencies we often see between bank practices and strategy. Below is one of my favorite slides.

In 2015 I wrote a post about creating a positive accountability culture. So I am guilty of throwing the term out there. I have never heard a bank state or write that they wanted a culture where employees hated coming to work, or cringed when their boss called them into their office. Yet so often when the boss gives employees feedback, it's negative. In the Navy, we said "one awe sh*t wipes out ten atta boys." That is how a spoken or written cultural aspiration is disconnected from everyday practice.

Psychology weighs in on negative feedback. The Positive Coaching Alliance taught me that in order to fill the emotional tank of players, you should provide at least five positive feedback interactions to one negative feedback to get maximum performance. They called it the magic ratio. 

I grew up in an environment where that ratio was upside down. And I witness it often in banking.

Note that the above slide is meant to highlight what not to do. And, perhaps, with my newfound appreciation for the term "culture", I should change the subheading to Providing Incentives That Are Contrary to Your Culture.

Because your aspirational culture must transcend words. Or it will never be attained.


What is your definition of culture?


~ Jeff

Bank Innovation: Three Ideas

I usually take more time researching blog posts than writing them. Today is an exception. Rather than searching reputable sources for how this bank or that bank innovates, I thought I would give it to you straight from the gut.

Because experience tells me that bankers are struggling with innovation. There is so much buzz about it, we are challenged to separate the wheat from the chaff. Fintech, regtech, martech (new one), AI, RPA, Chat Bot, actual bot. What's a banker to do?

At its core, innovation should solve problems. Problems we know we have. Problems we may not know we have. Customer problems. Process problems.

And who knows or can anticipate these problems better than 1) our customers, and 2) our people. 

Here is my opinion that may not sit well with some of my readers: Innovation through rapid change will rarely be led by those long in the tooth. Their experience clouds their view of the pace of change, especially if their experience is with slow, methodical, decades-in-the making change. Because we tend to believe past is prologue.

I'm full of idioms when I shoot straight from the gut.

I'm not telling you to build an innovation culture surrounded by young people. Make innovation a bank wide call to arms. But in creating a culture of innovation, don't have your long in tooth leaders shooting down innovation arrow after arrow offered by your short timers.

Here is how I think you could foster such a culture:


1.  Make Innovation Problem-Resolution Based. Nothing is more frustrating than expending organizational resources on a non-existent problem. Changing IHOP's name to IHOB comes to mind. HSBC putting actual robots in branches is closer to home. Community financial institutions' resources are already taxed by technology and regulation. Don't over-tax by encouraging innovation on problems that don't exist either internally or with our customers. So when you establish an innovation culture, the subject line of the memo proposing the innovation should be the problem the institution is trying to solve. Let your competitors waste resources on cool gizmos that only end up being resume' bullets for tech weenies.


2.  Coach Long-Timers. I've called them stoppers, sergeants, and old-schoolers. These are the people that implemented processes in the past that your innovators are now trying to solve. Like the cumbersome process that may exist in your bank to send wires. The story goes like this: a fraudulent wire got through, the bank CEO sternly directed ops personnel to ensure it doesn't happen again, and it now takes a DNA sample for someone to get a wire out. And the owner of that process is the department manager of the innovator trying to solve for a problem created by their boss. Here is where senior management will earn their leadership chops. Turn the stoppers into innovators. Or at least facilitators of innovation.


3.  Recognize and Reward. I called for a bank wide awards ceremony in a post two years ago (Five Ideas to Build an Accountability Culture at Your Bank). Innovation awards should be a part of the ceremony. Perhaps a central feature of it. Hand out a trophy. Give out meaningful cash and/or vacation time. Salute Long-Timers for fostering the culture that led to innovation. Demonstrate tangible results. Emphasize the problem solved.


These are my ideas on how to build an innovation culture that focuses innovation efforts on solving problems, real or emerging.

What other ideas do you have, or have heard of, that can move financial institutions forward fast enough to build a long-term future?

~ Jeff

Cultural Conversation in Banking

Are your incentives consistent with your strategy and culture?

I was recently interviewed by the Financial Managers Society on this topic, and as a lead-up to my presentation on the subject at the upcoming FMS Forum in Las Vegas in June.

Here are excerpts from the discussion.

FMS: Why is measuring account openings such a misguided endeavor?

JM: If a bank measures product profitability, costs follow activity. Those that don't measure product profitability intuitively tend to believe that the number of accounts drives the work more than balances, even though balances, for the most part, drive revenue in banking.

So if customer A comes in with $10,000, an accounts-driven institution would try to split up that $10,000 between two or three accounts so they can hit their targets. The profit-focused bank, on the other hand, would do what the customer originally intended, and open up that checking account knowing full well that they would get similar or equal spread on the $10,000 in the single checking account, but have less back-office expenses to absorb than if they opened three accounts.

FMS: Which numbers should matter in the quest for better profitability - and why?

JM: Co-terminous spread and direct pre-tax profit - and the trends for both - would create an environment to drive profitability rather than activity. Bankers typically hold lenders accountable for the size of their portfolio and their production. What if they were instead held accountable for the spread (after provision), both in dollar aggregate and the ratio, and the trend for each?

So if Lender A had a $50 million portfolio at a 1.25% co-terminous spread, or $625,000, would that be better than the lender with a $35 million portfolio, with a 2% co-terminous spread? The math says no. But who reaps more reward in today's environment?

FMS: Bigger picture, how can the right incentives lead to a better culture?

JM: We look for the path of least resistance in terms of meeting goals and incentives - it's human nature. If I'm a branch manager whose incentive kicks in if I grow branch deposits by 10%, then I'm looking to do that with the least resistance. So I might call my regional manager daily for CD rate exceptions to get that $200,000 CD, even though with the rate exception, that CD might have a five-basis-point spread.

On the other hand, if I was held accountable for growing my branch's co-terminous deposit spread, would I still chase the CD customer? Or would I maybe seek the operating account at the tire and battery shop down the street, even though that might bring 25% of that CD balance to my branch? Multiply that logic to every profit center within the bank. Now you have a culture!

Are Bankers At the Intersection of These Three Traits?

Jeff Weiner, CEO of LinkedIn, penned a post titled The Three Qualities of People I Most Enjoy Working With that was based on a Venn diagram (see below) he had previously posted. The diagram had 20k+ likes and comments on LinkedIn, and 2.2k retweets and favorites on Twitter. 

Does any bank culture produce these qualities? Does yours? There are headwinds. Banking, a slow moving tortoise of an industry until only recently, was not a big thinking industry. With all of the scrutiny, negative press, and regulatory change, I don't experience many bankers having fun, either.

What I do see at good performing financial institutions is the get sh*t done attitude. But even that is inconsistent. Impeding this culture is a "no mistakes" culture, or as we used to say in the Navy, "one aww sh*t wipes out 10 atta-boys". So whatever needs to get done goes through unnecessarily long approval chains to dilute accountability in case something goes wrong. And by wrong, I'm not talking something big, such as a regulatory order, or big losses. I'm talking about the possibility of an audit finding being enough to kill a get sh*t done culture.

A culture with all three would indeed be unique. And I'm confident there are financial institutions that have all three. I would like to hear from you about your bank, or one that you know, that has these three in their DNA.

Here are a couple of financial institutions that possess these traits.

Dream Big

In the fourth quarter of 2010, an investor group recapitalized a $66 million in assets financial institution, that was breaking even, and had less than $6 million in capital. The investors changed the management team, moved the headquarters, and dreamed big. Today, First Commerce Bank, in Lakewood, New Jersey, has $826 million in assets, $101 million in equity after a recent capital raise, and delivers a 1.56% ROA and a 17%+ ROE. By every financial metric this bank has been a success. The secret: Work Hard, Dream Big. My words, but not dissimilar to the words I've heard their CEO, Herb Schneider, say.

Get Sh*t Done

In my firm's most recent podcast, Tony Labozzetta, CEO of Sussex Bank, described how his team engineered a simultaneous turnaround, growth, and profitability story. When Tony's team was forming in the first quarter 2010, the bank had $452 million of assets, was barely making money, and over 5% of its loan portfolio was non-performing. Rather than hunker down and work through their troubles, they assigned bankers to work through them, and built a wall around them so the rest of their team could focus on that other thing... running and growing a profitable bank. Asset growth has been 12%, 15%, and 27% (year-to-date September 30th) the last three years respectively, the ROA was 0.72%, and non-performing loans to total loans was less than 1%. I'd say they got sh*t done. And they're still doing it.

Know How to Have Fun

A bank that knows how to have fun is difficult to pinpoint, although I'm confident there are some. With so many financial institutions tense about their next exam due to regulators' often times capricious interpretation of the implementation of regulations and law, how can bankers channel this tension into experimentation, technology adoption, and yes, fun. I think fun can be had. Here are a few things I think would work in creating an atmosphere ripe for employees having fun. 

1. Embrace mistakes as opportunities to learn. So long as the mistakes aren't of the "bet the bank" variety. 

2. Highlight and reward successes. Do so publicly, in the company newsletter, or an awards ceremony, etc. So often the positive to negative feedback ratio is way out of whack. Catch people doing something right. And train your supervisors to do the same.

3. Fire people. That's right, I'm suggesting firing people in creating a fun culture. Because nothing kills a fun culture than those sergeants in your bank that criticize far more than compliment, have zero tolerance for mistakes, and thwart efforts to move your bank forward. Get rid of them. The employees that remain will silently cheer. 

4. Start at the top. CEOs and executives could smile more, lighten up a meeting, pat people on the back, say thank you, etc. Your team is more likely to have fun if most signs they see from you is that you are having fun.

Tell me, what bank culture has all three?

~ Jeff