How Umpqua Bank Is Navigating the Digital Transformation

Writers look for interesting paradoxes to explore.
That’s what creates tension in a story, which engages readers.

These qualities can be hard to find in banking, a
homogenous industry where individuality is often viewed skeptically by

But there are exceptions. One of them is Umpqua
Holdings Co., the biggest bank based in the Pacific Northwest.

What’s unique about Umpqua is the ubiquity of its reputation. Ask just about anyone who has been around banking for a while and they’re likely to have heard of the $29 billion bank based in Portland, Oregon.

This isn’t because of Umpqua’s size or historic
performance. It’s a product, instead, of its branch and marketing strategies
under former CEO Ray Davis, who grew it over 23 years from a small community
bank into a leading regional institution.

Umpqua’s branches were particularly unique. The
company viewed them not exclusively as places to conduct banking business, but
instead as places for people to congregate more generally.

That strategy may seem nau00efve nowadays, given the popularity
of digital banking. But it’s worth observing that other banks continue to follow
its lead.

Here’s how Capital One Financial Corp. describes
its cafes: “Our Cafés are inviting places where you can bank, plan your
financial journey, engage with your community, and enjoy Peet’s Coffee. You
don’t have to be a customer.”

Nevertheless, as digital banking replaces branch visits, Umpqua has had to shift its strategy – you could even say its identity – under Davis’ successor, Cort O’Haver.

The biggest asset at O’Haver’s disposal is
Umpqua’s culture, which it has long prioritized. And the key to its culture is
the way it balances stakeholders.

For decades, corporations adhered to the doctrine
of shareholder primacy – the idea that corporations exist principally to serve
shareholders. The doctrine was even formally endorsed in 1997 as a principle of
corporate governance by the Business Roundtable, an organization made up of
CEOs of major U.S. companies.

Umpqua, on the other hand, has focused over the years on optimizing rewards to all its stakeholders – employees, customers, community and shareholders – as opposed to maximizing the rewards to just one group of them.

“We’re not the most profitable or highest total
shareholder return bank in the country,” O’Haver says. “We have to give some of
that up because of the things we do. If we’re going to innovate, if we’re going
to have programs that give back to our employees and our communities, it costs
money to do that. But we think that’s the right thing to do. It attracts
customers and great quality associates who bring passion to what they do.”

The downside to this approach, as O’Haver points
out, are lower shareholder returns. But the upside, particularly now, is that this
philosophy seeded a collaborative culture that can be leveraged to help
navigate the digital transformation.

Offering digital distribution channels isn’t hard. Any bank can pay third-party partners to build a mobile application. What’s hard is seamlessly blending these channels into a legacy ecosystem once dominated by branches and in-person service.

“How are you going to get your people to actually
embrace new technology and use it? How are they going to sell it if they don’t
feel like it’s valuable for them?” O’Haver says. “Yeah, it’s valuable for your
shareholders because it’s cheaper. But if you’re not counterbalancing that, how
are you going to get your associates to embrace it and sell it to customers? That’s
more important than the product itself, even in financial terms. If they don’t
embrace it, you will fail.”

This, again, may seem like a trite way to approach
business. Yet, Umpqua’s more balanced philosophy towards stakeholders has
proven to be prescient.

Last year, the Business Roundtable redefined the
purpose of a corporation. No longer is it merely to maximize shareholder value;
its purpose now is to fulfill a fundamental commitment to all its stakeholders.

Leading institutional investors are following suit. The CEOs of BlackRock and State Street Global Capital Advisors, the two biggest institutional investors in the country, are mandating that companies jettison shareholder primacy in favor of so-called stakeholder capitalism.

In short, while Umpqua’s decades-long emphasis on branches may seem like a liability in the modern age of banking, the culture underlying that emphasis may prove to be its greatest asset if leveraged, as opposed to lost, in the process of bridging the digital divide.


John Maxfield


John Maxfield is a freelance writer for Bank Director magazine. He was previously the senior banking specialist at The Motley Fool. He regularly writes for Bank Director magazine and His work has been syndicated widely to national publications including USA Today, Time and Business Insider, and he’s been a regular guest on CNBC. John has a bachelor’s degree in economics from Lewis & Clark College and a juris doctorate from Southern Methodist University. He’s a licensed attorney in the State of Oregon.