Rebel with a Cause

In the summer of 1996, officials of Boston’s Wainwright Bank & Trust Co. were asked to testify before Congress in support of a proposed Employment Non-Discrimination Act. Most banks might have turned down the request. A cardinal rule of banking is to avoid alienating any potential customer, and bankers by nature are a conservative lot. Speaking out in support of a law meant to protect the employment rights of gays and lesbians, women, and minority groups would likely go against both of those instincts.

Wainwright, however, isn’t just another bank. The publicly traded company has made its reputation as a champion of social-justice causes, throwing its support behind everything from the gay-rights movement and affordablehousing initiatives to immigration reform and the anti-Iraq war movement. Such stances might not sit well with everyone, but Co-founder and Chairman Robert Glassman isn’t fazed, and neither is his board. Indeed, not trying to be “all things to all people” is a crucial part of what makes Wainwright a business success.

Since undergoing a strategic reincarnation in the early 1990s,Wainwright has worn its liberal cause on its sleeve. It pursues and supports an array of social issues, both because directors and management believe it’s right, and because it’s an effective way to brand the bank and win the loyalty of Boston’s sizable, left-leaning community.

“Banking is an undifferentiated industry, with fungible services and commodity prices,” Glassman, 65, says, explaining the thinking behind the strategy. “We thought that if we were to pursue our personal passions and focus on community development, that could become our identity, and we’d have a chance to distinguish ourselves in a crowded field.”

All that made speaking out in favor of ENDA in 1996 pretty much a no-brainer. In short order, Glassman gathered up a handful of key management lieutenants and board member Brenda Cole-one of the few openly lesbian bank director in the nation-to begin crafting the company’s testimony. Cole was tapped as the spokesperson and wrote the first draft of the statement. Glassman and others added their own touches, and then it was read to the full board, which readily signed off.

“There was no dissent from the directors at all, not a whimper,” recalls Cole, 57, director of health services for the Massachusetts Department of Public Health’s HIV/AIDS bureau, and a Wainwright board member since 1993. “Without flinching a muscle or an eye, every person on the board agreed this is something we had to do.”

A few weeks later, Cole was on Capitol Hill, trumpeting the virtues of Wainwright’s gay and minority group initiatives to the House Committee on Small Business. Some people “may rightfully ask why Congress should pass a law telling businesspeople how to run their business[es],” she told the congressmen.”But … government has a responsibility to ensure that every American enjoys equal opportunity in the workplace-if not an equal guarantee of success.”

ENDA was defeated in the Senate that year by one vote. Asked to recall her testimony, Cole says it was “a little surreal, and nerve-wracking.We were forging new ground at the time, and there were a lot of people there.” But, she quickly adds,”These are the kinds of things we do as board members of this bank.”

While it occurred 11 years ago, Cole’s testimony speaks volumes about Wainwright’s politics and the board’s role in setting the tone. The bank makes a point of paying all fulltime employees at least a “livable wage”-currently $11.27 per hour-and makes a section of its website available, gratis, to any client community group that wants to spread its message and solicit donations (about 500 organizations use it). It also hosts a sizeable annual event in November, during which it presents a social justice award to a community group (the 2005 winner, for instance, was the local head of the American Civil Liberties Union).

Wainwright also is a leader in financing environmentally friendly “green”projects and recently opened a branch that makes use of renewable building materials, such as bamboo and cornstalks. In addition, it offers an array of financial literacy programs, as well as no-fee deposit accounts to low-income customers.Recently it began offering a CD to help finance the efforts of coffee farmers in the developing world.There are few boundaries, it would seem, on its outreach.

Knowing their customers

For all that,Wainwright is perhaps best known for taking a high-profile position on gay and lesbian rights. About 9% of the company’s work force is gay or lesbian. It was one of the first companies to offer domestic-partner benefits to its employees, and it took things a step further in the mid-1990s by successfully helping pressure the Massachusetts Bankers Association to extend similar coverage to all its members.

In 2003, CEO and president Jan Miller penned a public letter to the Massachusetts General Court opposing a proposed amendment to the state constitution that would have outlawed gay marriages. The proposal was “socially unjust and bad for business,” Miller wrote, because it “would cause a section of the population to be far less likely to want to live here,” and make Massachusetts “less competitive” for business. (The measure was defeated.)

Wainwright takes its support directly to the community, as well. It became a sponsor of the annual Boston Gay Pride parade and other gay community-oriented events well before mainstream companies embraced such causes. Those efforts have won Wainwright national attention. Its story has been written up as a Harvard Business School case study, and the bank has been featured prominently in books like Megatrends 2010. Earlier this year, it was ranked 38th on a list of “100 best corporate citizens” published by CRO Magazine. Even so, while some bankers might view the idea of taking bold stances on social issues as courageous, more of them likely consider it foolhardy.

Geri Forehand, director of strategic services for Brintech, a New Smyrna Beach, Florida-based consulting firm, has worked with Wainwright on strategic planning efforts. He says many bankers who don’t understand the model believe that Wainwright’s high-profile stands on controversial issues are a distraction that will, somehow, hurt shareholders. At banking conferences, CEO Miller often meets with skepticism when he tells his bank’s story. “I get a lot of eyes that glass over or roll,” he says. “People tune it out a bit.”

Yet, they shouldn’t. No doubt, Wainwright’s political/social profile wouldn’t fly in some markets, and could easily hurt a bank in many parts of the country. “It would be disingenuous of me to say that if I were in Lubbock, Texas, I could start a Wainwright Bank and expect this kind of success,” Glassman admits.

But in Boston, the bank’s political and social profiles win it loyalty and customer relationships-and drive performance. “Most bankers perceive what Wainwright does as risky,” says Forehand. “But it’s a clear differentiator and gives it a huge competitive advantage with its target customer base.”

That’s the real lesson for other boards and managements, says Christine Arena, a San Francisco-based author and strategy consultant, who researched the bank for her recent book, The High-Purpose Company. Wainwright’s tale, she says, is less about social justice than smart marketing and customer positioning. “The important thing to understand is that you need to stand for something that your target constituents believe is worth fighting for,” Arena says.

“Boards need to ask themselves: ‘Besides making money, what are we here to do? What makes us invaluable to people? How would the world be worse off if our company didn’t exist?’” she adds. “Wainwright can answer those questions very quickly, and it’s built a very strong connection with its customer base as a result.”

For all the talk about social issues, $812 million Wainwright is first and foremost a public company, subject to the same regulations, challenges, and earnings expectations that all publicly traded banks must contend with-and one that performs quite respectably.

Board members say they gauge the company’s success by focusing on “two bottom lines”-financial and social-and don’t consider their work to be done if either is found lacking. Indeed, the financial bottom line is tied so closely to the social agenda, and vice versa, that a shortcoming in either area might doom the other.

“We have values. Citizens speak out all the time. If we, as a banking institution, can open the door and get a conversation going by lending the gravitas of a public corporation to a debate, then we feel that it’s our responsibility to do that,” says Charles Desmond, 62, executive vice president of the Trefler Foundation, a Boston nonprofit that supports educational opportunities for urban youth, and a director since 1989. “But we’re not a charity.We’re a business that happens to have a little broader bandwidth than most of the [banks] we’re competing with.”

In 2006, as many banks struggled with growth and profitability, Wainwright’s diluted earnings per share jumped 6.3%, to 84 cents. Loans grew 9%, while deposit levels rose 3.6%. The bank’s returns on equity (10.42%) and assets (0.87%) are both lower than industry averages-12.43% and 1.28% respectively last year, according to the Federal Deposit Insurance Corp. Even so, these results appear to have been more than enough for investors, some of whom are attracted to the company’s progressive agenda. Since 1995, Wainwright’s average adjusted share price has risen from about $3 to more than $12. During the five years ending in December, total shareholder returns rose 138%, versus 28% for the NASDAQ composite and 55% for the SNL New England Bank Index.

Adding to those returns has been nearly $1.8 million in Bank Enterprise Awards that Wainwright has earned over the past eight years. The awards, funded by Congress and administered by the U.S. Department of Treasury, reward banks that increase the amount of support they provide to such causes as community development funds and affordable housing initiatives. (The money can be used however the bank sees fit.)

“It’s very difficult to be a repeat winner,” says Linda Davenport, deputy director of policy and programs for the Treasury unit that oversees the awards.”For Wainwright to win it eight times in a row means they’re doing exponentially more of these loans from one year to the next.”

Things have gone well enough that Wainwright’s board has approved an annual stock dividend of either 5% or 10% in each of the past six years. “Shareholders like it because it improves their returns and they don’t see much dilution,” explains James Barrett,Wainwright’s chief financial officer. “And it’s more effective than a cash dividend, because it’s capital-neutral and we can keep our liquidity.”

Loyalty creates success

The formula for the shareholders is certainly paying off, and yet Glassman is adamant that Wainwright’s social justice thrust be viewed as authentic, not a contrived “cause marketing” strategy. Even so, consistently taking the lead on progressive issues has bred intense loyalty in the bank’s

14,000 retail customers-many of them well-to-do-and 627 nonprofit organizations, most of which find the bank’s willingness to throw its corporate reputation behind their causes inspiring.

Jonathan Scott, president and executive director of Victory Programs, a private nonprofit that provides residential treatment programs for people suffering from homelessness, alcoholism, and mental illness, serves on the boards of several other nonprofits in Boston. “All of them want to do business with Wainwright because of its commitment to social causes,” he says. “They’re the real deal.”

Such loyalty is especially important at a time when competition and margins are so challenging. “We’re in a no-growth market. Massachusetts has lost population, and deposit levels haven’t risen for the last four or five years in the marketplace,” CEO Miller says. “Any growth you get, you’re taking from someone else, and we think our branding give us a leg up in this environment.” While the bank doesn’t maintain customer-attrition or retention statistics, turnover rates are better than most other banks.More than 75% of customers who leave do so not because they’re unhappy, but because they’re moving to another city, according to the bank’s internal surveys.

Wainwright has married its branding oomph with loan underwriting and product expertise to become a powerhouse in the nonprofit niche.More than 50% of the bank’s $636 million loan portfolio rests in the nonprofit sector. Those loans are priced on par with regular commercial loans and have proven to be great credits. Indeed, Wainwright officials say they’ve never had a nonprofit customer default on a loan. Such organizations “operate with a sense of moral obligation” that makes them better risks than many commercial borrowers, board member Cole explains. Adds Miller: “A lot of bankers think nonprofit means ‘no profit.’ … Our experience proves that’s not the case at all.”

The bank maintains a separate community-development lending department, and it understands the quirks and nuances of nonprofit lending exceedingly well. “The credit risks can be much different from a standard business loan,”Miller explains.A nonprofit might be eligible for tax credits several years after a project is completed, for example, and would want to sell those credits as equity for the project, he explains.”We’ll do bridge financing for that. But you have to be comfortable that they’re going to be able to meet all the thresholds for payment of that credit,”Miller says. “There’s a lot of city, state, and federal involvement, and it can be very complex.”

Its know-how and brand now combine to get Wainwright the right of first refusal on a big chunk of nonprofit projects in the Boston area.”When we find a building [to possibly purchase], my first or second call is to Wainwright,” says Lyndia Downie, president and executive director of the Pine Street Inn, New England’s largest homeless agency, with an annual budget of $30 million. Downie says she’ll sometimes call Wainwright officials for advice on nonbanking business matters, too.”I’ll ask them [about] the best way to proceed,” she explains. “They understand the facets of this area better, and have more credibility, than anyone else.”

Think of it as doing well by doing good. “People have a sense that you have to pay an economic price for doing good,” says Elyse Cherry, CEO of Boston Community Capital, a community development fund with $235 million in assets under management that is a longtime bank customer. “Wainwright has established that you don’t have to suffer.”

Beyond the nonprofits, Cherry describes another way that Wainwright caters to its community. Boston hosts a “large number of companies and high-net-worth individuals who have socially responsible politics,” she says.”Those people see Wainwright’s involvement, and it makes them much more inclined to use the bank themselves.” While nonprofits themselves aren’t usually big depositors-only about 10% of Wainwright’s deposits come from those clients-the people who back them often are. Steve Young, executive manager for consumer banking, says the marketing thrust to those folks is simple: “We say, when you deposit your paycheck with us, that money is going to support these kinds of projects,” he explains. “That appeals to a lot of people around here.”

To capitalize on some of those relationships,Wainwright also is a 35% owner of Trillium Asset Management, a socially responsible investment firm in Boston that manages more than $700 million in assets and whose mission dovetails nicely with Wainwright’s own. The firm, which contributes about $118,000 a year to Wainwright’s earnings, has a reputation for pressuring boards to adopt progressive reforms.Among its latest victories: A shareholder campaign that in March convinced oil services giant Halliburton to offer job protections to gay and lesbian workers.

Melding social issues with banking

Stepping back a bit, Wainwright’s model is, in many ways, community banking in its purest form, but it wasn’t always that way. In 1987, Glassman and his co-chairman John Plukas-friends since their days at Harvard Business School-launched what was essentially a plain-Jane private bank, borrowing the name of H.C.Wainwright & Co., a blue-blood securities firm where the pair had run the corporate finance department.

The late-’80s weren’t good for banks in New England. Bad real estate loans got plenty of institutions in trouble, and the former management team was no exception.”They were known as the gang who couldn’t shoot straight,” jokes Miller, who joined the company as an executive vice president in 1994 after 20 years at the old Shawmut Bank. (He became CEO in 1997.)

In the early-1990s, the founders took a more hands-on approach. Plukas assumed the role of CEO, and the company began pursuing a retail banking strategy. At the same time, Glassman began contemplating how to bring his personal passion for a handful of social issues, including homelessness and veterans rights (he’s a Vietnam veteran himself), into the bank’s operating mix.

When Steve Young was hired from Shawmut in 1992, he recalls Glassman saying that he “wanted to figure out a way to merge his personal interest in social justice issues with his business life, and create a new model for the banking industry.” Young says, “He wanted to show that you could be profitable for shareholders and still allocate capital to underserved communities.”

Despite such lofty objectives, there’s never been any sort of formalized long-term plan behind the bank’s strategy, Glassman says. Instead, the social agenda-and much of the accompanying business model-evolved gradually with time “into a wider tapestry of social justice advocacy” that came to define the bank.

The bank made its first big splash in 1993, when it offered a “community” credit card that allowed users to allocate 1% of purchases to one of 13 predominantly gay and lesbian organizations. The offering was a new twist at the time and gained national media attention-and a lot of customers. “We thought it could be locally controversial,” Young recalls. “But we were also telling one of the largest gay and lesbian populations in the country-and one with a lot of disposable income-hat we stood behind them.”

In 1999, it launched a first-of-its-kind website, affiliated to its own, called communityroom.net. Now any nonprofit customer with a checking account who wants it can get free pass code access, which allows them to download content and establish links to their own sites. They can tell their stories and list upcoming events, which are fed into a bigger “master calendar” of all participating organizations’ happenings. The groups also can solicit donations from bank patrons. (About 500 organizations are expected to raise $1 million this year.) Wainwright keeps track of money that’s donated directly from customers’ accounts, and saves the history. “At tax time, they can print out one document that lists all their donations,”Young explains.

A well-rounded board

Management has driven many of the bank’s initiatives, but directors play a big role in setting the tone. Glassman says one of his most important undertakings has been piecing together an 11-member board that’s both fiscally and socially effective.

It’s a seasoned group-six have been directors since the 1980s, and all but one has at least nine years’ experience-as well as a diverse one, with nearly half of its members either women or minorities.The board includes several former or current nonprofit executives and three sitting corporate presidents or CEOs, including John Reed, chairman and chief executive of heating- and air-conditioning-equipment maker Mestek, who at age 91 is purported to be the oldest active head of a New York Stock Exchange company.

Glassman has been drawn to some individual directors by the causes they support. In the late 1980s, for instance, he read a newspaper story about a new center for Vietnam veterans that had been launched at the University of Massachusetts and contacted Desmond-a fellow Vietnam vet-who was then the center’s head.”We got to know each other, and found we had a lot in common in the way we looked at the world,” recalls Desmond.

Most directors bring a blend of social consciousness and practical experience to their roles. Cole was recruited to the board when she was helping run an environmental center at Tufts University.The job included “a lot of fiscal management and day-to-day operations responsibilities” in areas such as information technology, Cole says. But “the main reason was to help make Wainwright Bank a household name in the gay and lesbian community.” Says Glassman: “I liked her professional competence and background, and she was able to introduce me to a piece of the social justice equation I hadn’t previously been involved with.”

Like boards everywhere,Wainwright’s has recently had to beef up its compliance and audit functions, which led to the 2005 appointment of James Pitts, 66, former chief financial officer of the Boston Foundation, a big nonprofit, as its newest member.”He was a ‘twofer’,” Glassman says of Pitts. “We got someone who is well acquainted with what we like to do on the social justice side, and he also brought the expertise we needed to strengthen the audit committee.”

Directors meet monthly, but talk among themselves much more than that.As one might expect, the discussions can get lively. “We don’t leave our hearts behind when we come to a meeting,” Desmond says. Miller says about half of the board members “are most active on the social front,” while the rest are “more financially oriented.”They draw off of each other’s strengths: Cole takes the lead on many gay rights issues, for instance, but says she’s comforted having Pitts’ financial background on the audit committee.

While directors don’t see eye-to-eye on everything, it’s pretty close. Glassman says disagreements among members are rare.One reason is that potentially contentious issues are vetted and hammered out in informal conversations before they are brought into the formal board setting, she explains.

Much of what Wainwright’s board does is no different from the tasks of any good board.Directors on the executive committee regularly review potential loans and business arrangements, and they are far from pushovers if the numbers don’t work-regardless of the cause. Desmond offers the recent example of a group of Latino businessmen for whom Wainwright might help to start a financial institution in Lawrence, about a half-hour north of Boston. “Theoretically, it’s something we might be interested in. But I’m not sure that the numbers and metrics make it feasible. … If an idea doesn’t translate to the bottom line, we might still talk about it.But we’re not going to pursue it as a bank.”

They also delve into operations-one recent meeting was dominated by a presentation on a new software program that would help better manage the financial and audit functions-and they pay special attention to maintaining good governance practices. In fact, the independent directors meet in executive session after every board meeting at the recommendation of Glassman, to discuss compensation and other sensitive topics without management present. The full board also reviews meeting minutes closely, Cole says, to “make sure all of the conversation is accurately and appropriately reflected.” As she explains, a board that holds itself and others to such high standards can’t slough off on corporate governance issues.”We’re real sticklers for getting that stuff right.”

An eye to the future

Like every other board, a chief concern is future growth. Revenues declined in 2006, due mostly to compressed margins,meaning cost cuts played a key role in the earnings growth.Wainwright plans to open a branch this year, its 12th, and aims to push out into the suburbs. It also plans to keep the pedal to the metal on its nonprofit business. In addition, directors have pondered an acquisition or two along the way.”We’ve had conversations for months, even longer,” Cole says, but nothing has ever come of them.

They’ve also toyed with the idea of exporting the franchise into other markets. While other large cities likely could support a bank that employs Wainwright’s business and social mix, none currently does. “You see some good community development banks” that target affordable housing issues in other locales, says consultant Forehand. “But no other bank in the country takes such a comprehensive approach or attacks so many issues.”

The problem, as board members see it, is that taking the Wainwright brand elsewhere would dilute the leadership of the core bank.”You’d need the right people involved to stay true to our mission and vision,” Desmond says, adding that as Wainwright grows, it might be possible to revisit the topic.

For now, there’s plenty of work to do. “There’s never a shortfall of social justice issues that need to be addressed. And money and banking will always be part of the fabric of addressing those issues,” Cole says. Fifteen years ago, HIV/AIDS and gay rights issues were only just gaining attention, and Wainwright led the charge. Today, they’ve gone mainstream. Rest assured, whatever liberal hot-button issues arise next, Wainwright and its board will be ready to take a stand.