A Bank Board’s Role During a Pandemic

Don’t just sit there — do  something!

This is probably the normal emotional reaction of many bank directors as the COVID-19 pandemic consumes large chunks of the U.S. economy, possibly putting their institutions at risk if the crisis leads to a deep and enduring recession.

The role of the board, even in a crisis of this magnitude, is still to provide oversight rather than manage. The board’s role doesn’t change during a crisis, but certainly the governance process must become more focused and strategic, the pace of deliberations must quicken and communication becomes even more important.

Bank boards are ultimately responsible for the safety and soundness of their institutions. While senior management devotes their full attention to running the bank during a time of unprecedented economic turmoil, the board should be looking ahead to anticipate what might come next.

“I think the challenge for [directors] is to gauge the creeping impact on their bank over the next few months,” says James McAlpin, who heads up the banking practice at Bryan Cave Leighton Paisner in Atlanta. “The board’s role is oversight … but I believe that in certain times — and I think this is one of them — the oversight role takes on a heightened importance and the board needs to focus on it even more.”

Many economists expect the U.S. economy to tip into a recession, so every board needs to be looking at the key indicia of the health of their bank in relation to its loan portfolio. “I’ve spoken to a few CEOs and board members over the past couple of weeks where there are active conversations going on about benchmarks over the next few months,” says McAlpin. “‘If by, say, the end of April, certain events have occurred or certain challenges have emerged, this is what we’ll do.’ In other words, there’s pre-planning along the lines of, ‘If things worsen, what should be our response be?’”

This is not the first banking crisis that David Porteous, the lead director at Huntington Bancshares, a $109 billion regional bank in Columbus, Ohio, has lived through. Porteous served on the Huntington board during the previous banking crisis, recruiting a new executive management team and writing off hundreds of millions of dollars in bad loans. That experience was instructive for what the bank faces now.

Porteous says one of the board’s first steps during the current crisis should be to take an inventory of the available “assets” among its own members. Are there directors whose professional or business experience could be helpful to the board and management team as they work through the crisis together?

Communication is also crucial during a crisis. Porteous says that boards should be communicating more frequently and on a regular schedule so directors and senior executives can organize their own work flow efficiently. Given the social distancing restrictions that are in effect throughout most of the country, these meetings will have to occur over the phone or video conferencing.

“You may have meetings normally on a quarterly or monthly basis, but that simply is not enough,” Porteous says. “You need to have meetings in between those. What we have found at Huntington that served us very well in 2008 and 2009 and is serving us well now, we have set a time — the same day of the week, the same time of the day, every other week — where there’s a board call. So board members can begin to build their plans around that call.”

Porteous says the purpose of these calls is for select members of the management team to provide the board with updates on important developments, and the calls should be “very concise, very succinct” and take “an hour or less.”

Porteous also suggests that either the board’s executive committee or a special committee of the board should be prepared to convene on short notice, either virtually or over the phone, if a quick decision is required on an important matter.

C. Dallas Kayser, the non-executive chairman at City Holding Co., a $5 billion regional bank headquartered in Charleston, West Virginia, says that when the pandemic began to manifest itself in force, the board requested reports from all major divisions within the bank. “The focus was to have everybody drill down and tell us exactly how they’re responding to customers and employees,” he says. Like Porteous at Huntington, Kayser has asked the board’s executive committee to be available to meet on short notice. The full board, which normally meets once a month, is also preparing to meet telephonically more often.

As board chair, Kayser says he feels a special responsibility to support the bank’s chief executive officer, Charles “Skip” Hageboeck. “I’ve been in constant conversations with Skip,” he says. “I know that he’s stressed. Everyone is, in this situation.” Being a CEO during a crisis can be a lonely experience.  “I recognize that, and I’ve made myself available for discussions with Skip 24/7, whenever he needs to bounce anything off of me,” Kayser says.

One of the things that every board will learn during a crisis is the strength of its culture. “The challenges that we all face in the banking industry are unprecedented, and it really becomes critical now for all directors, as well as the senior leadership of the organizations that they oversee, to work together,” says Porteous. One sign of a healthy board culture is transparency, where neither side holds back information from the other. “You should have that all the time, but it’s even more critical during a crisis. Management and the board have got to have a completely open and transparent relationship.”

Crafting a Last-Minute Telecommuting Policy

As the COVID-19 pandemic evolves, more banks are asking their employees to stay home and work.

Capital One Financial Corp. asked employees who could do so to begin working remotely effective March 12. JPMorgan Chase & Co. asked its managers around the world to allow employees to work from home, where possible, less than a week later.

“We understand that this may be a disruptive decision, but we believe that is in the best interests of our associates and our communities,” said Capital One Chairman and CEO Richard Fairbank in an internal memo. “And it will create more space and distance for those who still need to come into work.”

Some employees — those in customer-facing positions, for example — can’t work from home. But remote work can keep others safe and enable in-branch workers to better practice so-called social distancing, helping to prevent the spread of the novel coronavirus while still keeping the business running.

The pandemic promises to disrupt all workplaces, at least temporarily. Yet, few banks are prepared for this mode of work. Directors and executives responding to Bank Director’s 2018 Compensation Survey indicated less than one-third offered telecommuting options to at least some of their employees.

So, what do banks need to know about putting a remote-work plan in place? To find out, Bank Director reached out to a few banks to see how their telecommuting program has evolved.

Ensure a secure workplace
Memphis, Tennessee-based Triumph Bank limited telecommuting to its mortgage division before the pandemic hit, and it was a natural place to start when the $837 million bank began implementing social-distancing measures.

Triumph doesn’t have a set policy in place for remote work, but it has established guidelines — starting with ensuring that the employee’s workplace is safe from a data security perspective. The bank doesn’t want sensitive information easily accessed by an employee’s spouse, child, roommate or anyone visiting that person’s home.

With that in mind, the bank asked loan officers and some loan processors to work from home in response to the pandemic — a decision made, for the processors, based on each employee’s at-home environment. “You evaluate each situation: Does [the employee] have an area that they can work from at home that is a secure spot, where you don’t have to worry about customer information, [and] they won’t be distracted by young children or a spouse,” says Catherine Duncan, the bank’s vice president of human resources. Those factors are taken into consideration. “We were able to send those [employees] home, and we separated everybody else.”

Port Angeles, Washington-based First Northwest Bancorp is allowed to examine employees’ at-home workspaces to ensure data security, if needed. The $1.3 billion bank’s remote-work policy also outlines equipment usage, and what to do if something goes wrong — if the internet goes down, for example. “Whatever that is, expectations of you as an employee, what you’re expected to do at that moment,” says Chief Human Resources and Marketing Officer Derek Brown. 

Get the technology in order
TAB Bank Holdings was able to shift to remote work quickly — from about 10% of staff roughly three weeks ago to 96% as of March 18. The $827 million digital bank unit operates out of one location: its Ogden, Utah headquarters.

The fact that the bank has digital onboarding in place for loans and deposits, and moved from paper-based processes five years ago, enabled it to move rapidly.

It was really just a matter of setting up VPNs and machines, because the workloads are the same no matter where you sit,” says President Curt Queyrouze. A VPN is a virtual private network, which allows the user to send and receive data as if their computer were operating on a private network.

Following the bank’s disaster recovery meeting about the pandemic almost a month ago, staff identified where they needed more VPN licenses, and which employees lacked a personal computer or access to the internet at their home. This gap wasn’t limited to older employees; younger workers tend to rely on smartphones when they’re not in the office.

In response, TAB Bank ordered $400 laptops to distribute to select employees and granted stipends so staff could access the internet at home. That early move was critical — Queyrouze says a later trip to purchase a few more laptops came up empty, as stores wrestled with demand.

Banks need to consider all the technology required by the employee. For example, Duncan says Triumph Bank updated its payroll system so employees can now clock in remotely. That’s necessary for those that are eligible for overtime pay.

Enable communication between employees and teams
Technology facilitates communication and collaboration. Both TAB Bank and First Northwest use Microsoft Teams, a communication and collaboration platform tied to Office 365.

“To the extent that [employees] have video capabilities on their laptop or desktop [computer], we’re really encouraging them to use those so that we can see each other and feel more connected,” says Queyrouze. “We’re finding that it actually makes a difference.” He regularly emails staff, and they’re clearly communicating tasks that need to be accomplished as the situation evolves. “We have some employees whose actual work activity is going down because of reduced activity in some of our areas; for instance, loan demand’s down,” he says. “We’re trying to be purposeful about getting them engaged in other projects.”

Enabling communication is particularly critical for employees at this uncertain time.

“It’s been so fast moving that I’ve been just working to create communications and a sense of security for our employees,” says Brown. The situation is evolving rapidly, as new guidance comes from government agencies, legislative and executive bodies pass new rules, and banks work to digest it all and react appropriately for their employees, customers and communities. “We’re meeting every day to assess the situation.”

Teresa Tschida, a senior practice expert at Gallup, recommends setting clear expectations for staff, communicating frequently and gaining feedback along the way. Great managers “help people know what’s expected,” she says. And in a period of intense uncertainty — as schools and businesses close, and people are asked to isolate themselves in their homes — the daily grind of work can be a source of comfort.

“If done right, management and the company itself can be a respite from some of the stuff that we’re facing in our inboxes, or with our families and whatnot,” she says. “At least with our companies, we feel well taken care of.”

How One Bank Puts Agile Management Techniques Into Action

When David Mansfield took the reins as CEO of Provident Bancorp six years ago, he could see that a change was needed, and that required new thinking.

“We were a typical community bank trying to be everything to everybody,” says Mansfield. He transformed the $1.1 billion bank based in Amesbury, Massachusetts, into a “true commercial bank” to the small and mid-sized companies that form the “backbone” of the community.

We’re trying to offer products and services that are not commodities, where we can differentiate ourselves, add value and get paid for it,” says Mansfield. “The customer’s appreciative, because they’re getting a product or service that really isn’t available to [small and mid-sized companies]” — like specialty services usually offered by large regional and money-center banks to their corporate clients.

To accomplish that, he needed employees who weren’t afraid to shake things up. He also needed to develop a culture and tools that facilitated collaboration within the organization. To do this, he borrowed managerial techniques from the technology sector by adopting Lean and Agile techniques.

Teams within the bank using these methods identify how to improve processes and workflows. “We have had some really amazing success stories,” says Mansfield.

Lean management aims for continual, incremental improvement. Quick “daily huddles” in the bank help staff focus on the day. In these 15-minute standup meetings, employees provide a quick update about progress on key projects and share any obstacles they’re facing so these issues can be addressed.

Mansfield credits Lean methods for improving interdepartmental dynamics. “One of the major premises of Lean [is that] it’s all about the customer experience, and we truly believe within this organization that everybody has a customer,” he says. Loan officers and branch staff directly interact with the customer, but support staff have a customer, too: their colleagues serving the customer. “What I love about our IT group is, they believe that wouldn’t happen unless they serve their customer, which is that group of people.”

Provident Bancorp still incorporates Lean thinking, but started shifting to Agile techniques late last year, upon hiring Joy Curth as senior information officer. Curth’s experience includes a stint in application development at Intuit, and she understands Agile methods. The principles of Lean and Agile are similar; both seek to create workflow efficiencies and promote iterative development.

Curth doesn’t have a banking background, which appealed to Mansfield. “We’re trying to do some different things, really leverage technology, and the traditional bank chief information officer just is not what I was looking for,” he says. As the bank weighs partnerships with technology companies, “she’s not only able to speak their language, but she’s able to recruit people to join her team [and] really professionalized our project management team” due to her Agile background.

Adoption of Agile has been project based, and the bank’s first project under the methodology was integrating ResX Warehouse Lending, a warehousing lending division that it acquired in January from $58.6 billion People’s United Financial, based in Bridgeport, Connecticut.

“Dave came to us and announced we were going to do an acquisition, and we were able to complete that project in [roughly] 8 weeks,” says Curth. “A whole acquisition of staff, technology, contracts — that was pretty expedited and showed that we were able to do that without a hitch.” The project’s success encouraged bank leaders to roll out the approach for most key projects.

“Even the bank we were doing the acquisition from [was] really impressed with our team,” says Mansfield. “We really drove it; it was an everyday meeting, what’s the status, how to keep things going.”

Agile is an ongoing journey that Mansfield believes represents the “next evolution” for project management at Provident. He’s a big reader, and one of his favorites is “Good to Great: Why Some Companies Make the Leap…And Others Don’t,” by Jim Collins.

“There’s a concept he uses: Shoot bullets first,” says Mansfield. Shooting bullets means pursuing attempts that represent a low risk and require minimal resources. If it works, you recalibrate and then “shoot the cannonball when you’re ready,” he says — using your company’s resources to make a big move based on those earlier, iterative attempts.

Another one that he calls a “gut check” on Lean techniques is “Jumpstart Your Service Revolution: Transform Your Company’s DNA and Thrive in an Age of Disruption,” by Thomas Schlick.

By adopting Lean and Agile techniques, Mansfield is creating a bank that differentiates itself in the market. Curth adds that employees enjoy working there. It’s what drew her to the bank. “When you implement this type of culture, your morale is high, and there really is an energy that is compelling and exciting,” says Curth.

Recommended Reading from David Mansfield, Provident Bancorp

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 regulators.

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 naïve 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.

Conversing with Chief Cultural Officers

Bankers talk about the importance of culture all the time, and a few have created a specific executive-level position to oversee it.

Chief culture officer is an unusual title, even in an industry that promotes culture as essential to performance and customer service. The title was included in a 2016 Bank Director piece by Susan O’Donnell, a partner with Meridian Compensation Partners, as an emerging new title, citing the fact that personnel remain a critical asset for banks.

“As more millennials enter the workforce, traditional banking environments may need to change,” she wrote. “Talent development, succession planning and even culture will be differentiators and expand the traditional role of human resources.”

Yet a recent unscientific internet search of banks with chief culture officers yielded less than a dozen executives who carry the title, concentrated mostly at community banks.

One bank with a chief culture officer is Adams Community Bank, which has $618 million in assets and is based in Adams, Massachusetts. Head of Retail Amy Giroux was awarded the title because of her work in shifting the retail branches and staff from transaction-based to relationship-oriented banking, which began in 2005. Before the shift, each branch tended to operate as its own bank, with the manager overseeing the workplace environment and culture. That contributed to stagnation in financial performance and growth.

“We decided that we wanted to grow but to do that, we really needed to invest in our workplace culture,” she says. “When you think of a bank’s assets and liabilities, which represents net worth and capital, cultural capital becomes equally important.”

The bank’s reinvention was led by senior leadership and leveraged a training program from transformation consultancy The Emmerich Group to retrain and reorient employees. The program incorporated Adams’ vision and core values, as well as accountability through measurable metrics. Branch staff moved away from acting as “order-takers” for customers and are now trained to build and foster relationships.

“It’s worked for us,” says CEO Charles O’Brien. “We’re the go-to community bank for our customers, and they rave about how different we are. We’ve grown significantly over the last five years.”

As CCO, Giroux works closely with the bank’s human relations team on fulfilling the bank’s strategic initiatives, aligning operations with its vision and goals, creating a framework of visibility and deliverability for goals and holding employees accountable for performance. She reports to O’Brien, but says her efforts are supported by the whole executive team.

“A lot of times, people think that culture is invisible. They’ll sometimes say, ‘Well, how do I do these things on top of my job?’” she says. “Culture isn’t something you’re doing on top of your job. It’s how you do your job.”

At Fargo, North Dakota-based Bell Bank, the chief culture position is held by Julie Peterson Klein and is nestled within the human resources group, where about 20 employees are split between HR and culture. She says she has a “people first, workload second” orientation and has focused on culture within HR throughout her career; like Giroux, the title came as recognition for work she was already doing.

She says her job is really about empowering employees at the State Bankshares’ unit to see themselves as chief culture officers. Bell’s culture team supports employees by engaging the $5.7 billion bank’s 200 leaders in engagement and training, and works with HR to handle onboarding, transfers, promotion and exits. The group also leads events celebrating employees or giving back to the community, using storytelling as a way to keep the bank’s culture in front of employees.

“We focus on creating culture first, and we hire for that on the HR side,” she says.

Culture is important for any organization, but Giroux sees special significance for banks because of the large role they play in customers’ financial wellness. Focusing on culture has helped demonstrate Adams’ commitment of giving customers “extraordinary service.”

“Prior to having the collaboration and the infrastructure for culture, everybody kind of did their own thing,” Giroux says. “This really solidifies the vision and the mission. And it really is, I believe, the glue that holds us together.”

Industry Perspectives at Acquire or Be Acquired 2020

People, Products & Performance – In this interview with Bank Director CEO Al Dominick, John Eggemeyer shares his thoughts on what drives performance.
Super-Connected Customers – Data, payments and other technology-related issues were top of mind for bankers at the 2020 Acquire or Be Acquired conference.
Who Gets the Dog? – On the heels of the CenterState Bank Corp./South State Corp. merger, Al Dominick evaluates a core cultural issue around these deals.
Spotlight on M&A – Drivers of M&A, balancing organic growth with acquisitions, and nonbank deals were key topics discussed from the stage at Acquire or Be Acquired.
Exploring Opportunities – Bank Director CEO Al Dominick shares three important takeaways from the first day of the 2020 Acquire or Be Acquired conference.
Technology’s Impact – Hear how banking industry leaders view today’s quickly evolving technology landscape.
Focus on Consolidation – Big mergers of equals and tech deals defined the banking market in 2019.

Three Things You Missed at Experience FinXTech


technology-9-11-19.pngThe rapid and ongoing digital evolution of banking has made partnerships between banks and fintech companies more important than ever. But cultivating fruitful, not frustrating, relationships is a central challenge faced by companies on both sides of the relationship.

The 2019 Experience FinXTech event, hosted by Bank Director and its FinXTech division this week at the JW Marriott in Chicago, was designed to help address this challenge and award solutions that work for today’s banks. Over the course of two days, I observed three key emerging trends.

Deposit displacement
The competition for deposits has been a central, ongoing theme for the banking industry, and it was a hot topic of conversation at this year’s Experience FinXTech event.

In a presentation on Monday, Ron Shevlin, director of research at Cornerstone Advisors, talked about a phenomenon he calls “deposit displacement.” Consumers keep billions of dollars in health savings accounts. They also keep billions of dollars in balances on Starbucks gift cards and within Venmo accounts. These aren’t technically considered deposits, but they do act as an alternative to them.

Shevlin’s point is that the competition for funding in the banking industry doesn’t come exclusively from traditional financial institutions — and particularly, the biggest institutions with multibillion-dollar technology budgets. It also comes from the cumulative impact of these products offered by nondepository institutions.

Interestingly, not all banks struggle with funding. One banker from a smaller, rural community bank talked about how his institution has more funding than it knows what to do with. Another institution in a similar situation is offloading them using Promontory Interfinancial Network’s reciprocal deposit platform.

Capital allocation versus expenses
A lot of things that seem academic and inconsequential can have major implications for the short- and long-term prospects of financial institutions. One example is whether banks perceive investments in new technologies to be simply expenses with no residual long-term benefit, or whether they view these investments as capital allocation.

Fairly or unfairly, there’s a sense among technology providers that many banks see investments in digital banking enhancements merely as expenses. This mindset matters in a highly commoditized industry like banking, in which one of the primary sources of competitive advantage is to be a low-cost producer.

The industry’s justifiable focus on the efficiency ratio — the percent of a bank’s net revenue that’s spent on noninterest expenses — reflects this. A bank that views investments in new technologies as an expense, which may have a detrimental impact on efficiency, will be less inclined to stay atop of the digital wave washing over the industry.

But banks that adopt a more-philosophical approach to technology investments, and see them as an exercise in capital allocation, seem less inclined to fall into this trap. Their focus is on the long-term return on investment, not the short-term impact on efficiency.

Of course, in the real world, things are never this simple. Banks that approach this decision in a way that keeps the short-term implications on efficiency in mind, with an eye on the long-term implications of remaining competitive in an increasingly digitized world, are likely to be the ones that perform best over the long run.

Cultural impacts
One of the most challenging aspects of banking’s ongoing digital transformation also happens to be its least tangible: tailoring bank cultures to incorporate new ways of doing old things. At the event, conversations about cultural evolution proceeded along multiple lines.

In the first case, banks are almost uniformly focused on recruiting members of younger generations who are, by habit, more digitally inclined.

On the flipside, banks have to make hard decisions about the friction that stems from existing employees who have worked for them for years, sometimes decades, and are proving to be resistant to change. For instance, several bankers talked about implementing new technologies, like Salesforce.com’s customer relationship management solutions, yet their employees continue to use spreadsheets and word-processing documents to track customer engagements.

But there’s a legitimate question about how far this should go, and some banks take it to the logical extreme. They talk about transitioning their cultures from traditional banking cultures to something more akin to the culture of a technology company. Other banks are adopting a more-tempered approach, thinking about technology as less of an end in itself, and rather as a means to an end — the end being the enhanced delivery of traditional banking products.

A Dangerous Force in Banking


culture-8-23-19.pngThe more you learn about banking, the more you realize that just a few qualities separate top-performing bankers from the rest.

One of the most important of these qualities, I believe, is the ability of bankers to combat what famed investor Warren Buffett calls the “institutional imperative.”

Buffett, the chairman and CEO of Berkshire Hathaway, wrote about this in his 1990 shareholder letter:

“The banking business is no favorite of ours. When assets are twenty times equity — a common ratio in this industry — mistakes that involve only a small portion of assets can destroy a major portion of equity. And mistakes have been the rule rather than the exception at many major banks. Most have resulted from a managerial failing that we described last year when discussing the ‘institutional imperative:’ the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it may be to do so.”

At the time, Buffett was referring to a credit-fueled bubble in the commercial real estate market. The bubble was in the process of popping; commercial real estate prices would decline 27% between 1989 and 1994.

The subprime mortgage and leveraged lending markets in the lead-up to the financial crisis offer more recent examples. No bank wanted to lose market share in either business line, even if doing so was prudent. This was the impetus for Citigroup CEO Chuck Prince III’s oft-repeated quote about having to dance until the music stops.

“When the music stops, in terms of liquidity, things will be complicated,” Prince told the Financial Times in 2007. “But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

Here’s the problem: A bank that loses market share is vulnerable to criticism by analysts and commentators.

In 2006, for instance, JPMorgan Chase & Co. began offloading sub-prime mortgages and pulling back from the market for collateralized debt obligations. “Analysts responded by giving JPMorgan Chase what one insider calls ‘a world of [expletive] for our fixed-income revenues,’” writes Duff McDonald in “Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase.”

“One of the toughest jobs of the CEO is to look at all the stupid stuff other people are doing and to not do them,” a long-time former colleague of JPMorgan’s Chairman and CEO Jamie Dimon told McDonald.

You would think that analysts and commentators would, at some point, realize that it’s ill-advised to pressure bankers into prioritizing short-term results over long-term solvency, but there’s no evidence of that.

Darren King, the chief financial officer of M&T Bank Corp., noted at a conference in late 2018 that, “The narrative around the industry is that M&T has forgotten how to lend.”

M&T Bank has been one of the top-performing banks in the country since the early 1980s. King was referring to analysts and commentators’ reaction to the fact that M&T’s loan growth over the past two years has lagged the broader industry.

But as King went on to explain: “Generally what you find is when economic times are strong, we’re growing but generally not as fast as the industry. And in times of more economic stress, we tend to grow faster.”

So, how does a bank combat the institutional imperative?

The simple answer is that banks need to cultivate a culture that insulates decision-makers from external pressures to chase short-term performance. This culture is a product of temperament and training, as well as institutional knowledge about the frequency and consequences of past credit cycles.

This culture should be buttressed by structural support, too. Skin in the game among executives is a good example; a supportive board focused on the long term is another. A low efficiency ratio also enables a bank to focus on making better long-term decisions while still generating satisfactory returns.

In short, while the institutional imperative may be one of the most dangerous forces in banking, there are ways to defeat it.

Exclusive: How KeyCorp Keeps Diversity & Inclusion in Focus

Banks large and small are focusing more sharply on diversity and inclusion as a way to attract and retain the best talent, regardless of gender, race, ethnicity or sexual orientation.

One bank demonstrating a robust D&I program is $141.5 billion asset KeyCorp, headquartered in Cleveland, Ohio. It’s perhaps no coincidence that it’s the largest bank led by a woman: CEO Beth Mooney, who took the reins at the superregional bank in 2011 to become the first female CEO of a major U.S. financial institution.

Heading KeyCorp’s D&I efforts since 2018 is Kim Manigault, who joined Key in 2012. She previously served as the chief financial officer in the bank’s technology and operations groups; before that, she spent 12 years at Bank of America Corp. in similar roles.

“I’ve had lots of different opportunities at different organizations, but I’ll say in coming to Key, what I realized here is a really firm and demonstrated commitment to creating opportunities for women as well [as men] in our senior ranks,” Manigault told Bank Director Vice President of Research Emily McCormick, who interviewed her as part of the cover story for the 2nd quarter 2019 issue of Bank Director magazine. (You can read the story, “A Woman’s Place is in the C-Suite,” by clicking here.)

A strong D&I strategy isn’t solely the domain of big banks. In this transcript—available exclusively to members of our Bank Services program—Manigault delves into KeyCorp’s intentional and deliberate focus on diversity and inclusion, and shares the tactics that work within the organization.

She also discusses:

  • Components of KeyCorp’s D&I program
  • Measuring Success
  • Creating a Culture of Inclusion

The interview has been edited for brevity, clarity and flow.

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A Woman’s Place is in the C-Suite

As a young girl in Arkansas, Natalie Bartholomew always knew she wanted to be a banker. She collected credit card applications at department stores and deposit tickets from her grandfather, a banker, so she could “play bank” at home. She joined a junior bank board in high school and was employed as a teller by her senior year.

Today, Bartholomew is the chief administrative officer at Grand Savings Bank, a $455 million asset community bank based in Grove, Oklahoma. But as she was promoted through the ranks at a succession of Arkansas-based community banks, and began attending industry networking groups and conventions, she noticed something. “It was just a boys’ club,” she says. This isn’t an anecdote from banking’s yesteryears: Bartholomew is in her 30s. “Oh my gosh: This is the industry I’m in,” she thought at the time. “There are no other young females, and no wonder they don’t want to be here, because this is the road you have to go down, this is the hill to climb … these guys have ruled the roost for so long, then why would a young woman want to even attempt to conquer this industry?”

Women are ready, willing and able to lead in today’s C-suites and boardrooms: Forty-five percent of working women aspire to hold an executive role, according to Gallup’s research on women and the workplace. Yet, corporate America remains dominated by men. Fewer than 5 percent of S&P 500 companies are led by a female chief executive officer, including two financial services companies—Beth Mooney of KeyCorp and Margaret Keane of Synchrony Financial. Women hold just 21 percent of senior leadership roles, according to Catalyst, a nonprofit focused on promoting gender inclusion. In fact, the nonprofit claims there are fewer female leaders in the U.S. than there are men named John.

Too frequently, executives and boards assume women aren’t willing to work as hard or put in the long hours that can be required to advance through the ranks. That’s a misconception, says Teresa Tschida, a senior practice expert at Gallup. “Our research would say that, for women [who] want to move up to those senior roles, they are just as willing to work long hours.”

A gender-diverse leadership team can also strengthen strategic decisions. While individual strengths vary widely, women are generally better at relationship building, according to Gallup’s research, along with structure, routine and planning. “They do work smarter—they’re more efficient,” says Tschida.

A study examining the effect of gender diversity on profitability, published in 2016 by the Peterson Institute for International Economics, found “the correlation between women at the C-suite level and firm profitability is demonstrated repeatedly.” And the proportion of female executives and female board members is instrumental, which “underscores the importance of creating a pipeline of female managers and not getting lone women to the top.”

“Diverse teams bring different life experiences and different perspectives and function better,” says Deborah Streeter, a Cornell University professor who leads the Bank of America Institute for Women’s Entrepreneurship. Unfortunately, most companies have a “leaky pipeline” when it comes to female talent. “The pool of women, by the time you get to the C-suite level, is too small,” she says.

The gender-diverse executive team at $1.3 billion asset First United Corp., based in Oakland, Maryland, generates a positive reaction among its employees and community. Four executives on the seven-member senior management team are women, including the chief executive and chief financial officer. People “will comment to me how inspiring it is for them to see that the company provides opportunity equally,” says CEO Carissa Rodeheaver. “It’s really representative of the fact that you can do whatever you set your mind to, and it doesn’t matter what your gender is in moving through a company. It’s all about your ambition, it’s all about your skill sets, it’s all about your desire, it’s all about your passion to continue to move forward, whether you’re a man or a woman. We will recognize that—we’ll foster that, and we’ll help you to grow.”

In most cases, a leaky talent pipeline isn’t the result of outright discrimination, but rather relying on outdated approaches to leadership development and corporate culture.

Building diversity on leadership teams—in the C-suite and on the board—doesn’t happen by accident. It’s the result of intentional practices and strategies that reward women as well as men, and programs that help banks better identify and promote their best employees—regardless of gender.

“We’re not specifically aiming to have more women in our workplace. We’re aiming to be inclusive and have top talent, and we recognize that that talent comes in all shapes and sizes,” says Kim Manigault, the chief diversity and inclusion officer at Cleveland, Ohio-based KeyCorp, with $140 billion in assets. “That doesn’t happen by accident. That happens when you have a very direct and deliberate and committed focus on diversity and inclusion across all the programs and policies within your organization.”

Diversity can’t be achieved overnight. “It’s a long-term process of cultivating candidates inside the company,” says John Daniel, chief human resources officer at $41 billion asset First Horizon National Corp., based in Memphis, Tennessee.
A number of banks, including First Horizon and KeyCorp, have leadership development programs in place. “Women who get development—of any kind—actually show a greater confidence than the men who go through the same program in their ability to apply their skills, because they felt supported, and they got that development, and they worked on leadership skills,” says Stephanie Neal, a senior research consultant at the talent management firm Development Dimensions International, based in Pittsburgh, Pennsylvania.

Focusing on developing female leaders is paying off at Fifth Third Bancorp, says Chief Administrative Officer Teresa Tanner. Female employees at the $146 billion asset Cincinnati, Ohio-based bank were working hard but staying under the radar. So, the bank created a program—tailored to women—to address development gaps. “We really felt that doing a gender-specific program that could really talk about those skills that women need at an executive level, creating a safe space with other women to stretch and grow, would be a great investment,” she says. One-third of the program’s graduates have already received promotions or taken on new responsibilities. “It has far exceeded my expectations,” she says.

Personalized development plans can enhance development, especially for female employees. “It helps [leaders] to target where they put their energy and then, of course, they see greater results,” says Neal. Women, in general, tend to have specific development needs, including “building confidence, knowing how to build stronger networks, and knowing how to create greater influence in an organization, especially when the status quo works against them,” she says.

Fifth Third’s program works on building soft skills that may not be as readily developed among female talent—confidence in promoting oneself, for example, and learning how to network. “Things that we haven’t historically been so overt about teaching women how to do, and I’ve seen it pay off,” says Tanner.

Personalized development appeals to men and women—particularly to millennials. “We find this desire for the culture of coaching, and about growth and development, is coming from some of the younger generation in the workplace today,” says Tschida.

Individual development plans play a key role in developing executives at First United. “Every person in the company has an individual development plan, and it talks about areas where they feel that they are strong and want to continue to grow in, or areas where they have an opportunity to improve,” says Rodeheaver. The bank introduced a “skip-a-level” approach this year that has Rodeheaver reviewing all development plans for employees who report to her direct reports, so she can better understand where coaching is needed, which she sees as vital to succession planning.

“Succession doesn’t just happen at the executive level—it really needs to happen throughout the company,” Rodeheaver says. “This gives me the opportunity to look one layer below my direct staff to see, who do we need to continue to develop for succession in the future.”

Women are less likely to receive feedback on their performance, according to a study conducted in 2016 by McKinsey and LeanIn.org—underscoring the important role mentorship programs can play in developing female leaders.

Rodeheaver says she benefited personally when former CEO Bill Grant took her under his wing. “He opened doors for me, he introduced me to people in the industry,” she says. “If you look at our organization, we have a lot of women in leadership positions, so he was an excellent mentor for all of us and, I think, he really was a champion for women in the bank, not because he set women apart—because he didn’t set women apart.”

Unfortunately, women often don’t receive the same mentorship opportunities as men. There are a few reasons for this. First, few banks have a formal mentorship program in place. Just 15 percent of executives and directors said their bank offered a mentorship program in Bank Director’s 2018 Compensation Survey. Men hold the majority of executive positions, so informal programs tend to exclude women.

It can be difficult to naturally develop cross-gender relationships, so formalizing the process helps level the playing field between men and women to ensure the bank is developing the best employees, regardless of gender. “Leaving things to be more chance, more informal really puts those powerful mentorships for women at risk,” says Neal.

At KeyCorp, 450 employees participated in mentoring last year, says Manigault. Seventy percent of those mentor/mentee matches included a woman. “We had a significant component of those groups that were multicultural as well, meaning you can get guidance, coaching, development from somebody who doesn’t look like you, or who isn’t in the line of business you’re in or who hasn’t had the experiences you’ve had. It’s all about where you are going to get the guidance, coaching and development that’s the best for you.”

Employee resource groups, deployed at organizations like KeyCorp and First Horizon, also play an important role. “We have a population of women in our organization [who] want to come together, rise and grow through the ranks together, from junior level to executive level,” says Manigault.

Managers are particularly hesitant to provide constructive feedback to their female reports. Streeter refers to this lack of feedback as “ruinous empathy,” and despite the best intentions on the part of managers, it does more harm than good.

“Nobody can grow without feedback,” she says. Ruinous empathy cheats employees—particularly women—out of opportunities to improve and grow.

And rather than indirectly punishing talented female employees by declining to mentor them, male executives who feel nervous about interacting with women in the #MeToo era should rethink their approach. “Male leaders now say, ‘Look, I am worried, I don’t want to take a young woman to lunch at a restaurant, because I’m worried that I’ll be a target,’” she says. “If that’s true, don’t take either men or women for lunch at a restaurant, use a different method for interacting with them.” 
Reconsider other practices too, like networking on the golf course. That could be another practice that more frequently rewards men over women.

“Provide a safe structure, so people can become sponsors—it’s one of the major things that women lack in many environments is access to mentors and sponsors,” says Streeter. And executives should be responsible for developing potential successors. “Mentoring and sponsoring both women and men has to be part of the way that leaders are also evaluated by the board.”

Bartholomew found herself looking outside for mentors, and building that support system led her to create her blog, “The Girl Banker.” Women in banking are hungry for these connections—and they want advice, she says. “There [are] always a lot of questions about additional education and resources to help further them in their career,” says Bartholomew. Work/life balance is also a hot topic, and one of her most popular blog posts discusses so-called mom guilt. “Working moms, they love their children, they love their family, and they love their career, and they don’t want to be held back by either one,” she says.

Motherhood plays a big role in delaying or even derailing women’s careers, but banks can provide perks that benefit both men and women in the company, including expanded paternity/maternity leave benefits and flexible schedules.

At First United, flexibility can be as simple as giving employees—no matter their family situation—time to spend on what matters to them, whether that’s attending PTA meetings or coaching their child’s soccer team—or something else entirely, says Rodeheaver. That can mean working some hours from home as well, if the position permits it. “I don’t mind where you work, as long as the work’s getting done,” she says. “It’s very common for me to have my staff send me an email and say, ‘One of the kids is sick, I’m going to be working from home today.’ And it’s having that trust that they’re going to be able to pull that off.”

Some banks are rethinking the benefits they offer employees so they can better retain women or attract them back into the workforce. The “Career Comeback” program at the Swiss financial services company UBS Group offers permanent positions to men and women worldwide who want to reenter the workforce, along with the education and mentorship they need to make the transition.

Fifth Third has focused its efforts on retaining women through its maternity concierge program. “We were seeing women at mid-career leave the workforce at a much higher rate—it was almost double the turnover rate of a typical employee,” says Tanner. Employees who wanted to stay on to build their careers struggled to balance the demands of work and family. The solution? “We basically give someone their own personal assistant,” she says, to run errands, from getting groceries to planning a baby shower to helping buy a car seat. “They give them that extra set of hands that they need so that they can worry about work and continue in their career, but let somebody help them through this huge transitionary change in their life.” It’s had an impact on Fifth Third’s ability to retain these employees: Women who used the program were 25 percent more likely to stay on the job.

Women have access to the maternity concierge program until their child’s first birthday. After that, they can use the bank’s general concierge program, a similar perk offered to both men and women.

Access to expanded maternity perks and flexible scheduling can have a big impact on employees, but companies should also ensure they’ve removed any cultural stigmas around using these benefits, advises Cathleen Clerkin, a senior research faculty member at the nonprofit Center for Creative Leadership. If applicable, ensure that men and women are using the benefit equitably. For example, she says that women say flexibility is important to them, but research suggests men are more likely to receive this benefit. “Women might not want to ask what the options are, for fear of backlash,” she says.

Setting transparent policies around flexible scheduling and similar benefits can help combat this concern. “When there is fuzziness, that’s where you see implicit bias sneak in,” says Clerkin.

Implicit or unconscious bias—the unconscious stereotypes held by the average person—are perhaps the trickiest issue to tackle when creating an inclusive culture that rewards and advances all, rather than some, employees.

We all hold some form of unconscious bias. Most of us just don’t know it.

“For the most part, people really mean well, and they really want to support women,” says Clerkin. But leaders often make assumptions that don’t align with a talented female employee’s actual goals. It’s a pattern of behavior called protective hesitation, and results in fewer opportunities for women to grow as leaders. They may be passed up for a challenging assignment, for example, or a promotion that requires the employee to relocate. “There’s this protective hesitation around trying to do the right thing, [which] can actually prevent women from getting through the pipeline,” says Clerkin.

She recommends a simple solution. “It sounds so simple, but just asking women, ‘What do you want, how can I advocate for you, what kind of feedback do you need, what kind of positions do you want,’ instead of trying to guess what the best decisions are, I think is something that would really make a difference.”

At Fifth Third, the management committee—comprised of the bank’s top 100 leaders—recently spent two hours with a neuroleadership expert to learn more about bias and diversity. “We have to model it from the top, and we have to continue to educate and challenge the way we think about this,” says Tanner.

Streeter recommends a saying to weigh your own unconscious bias: “Detect, inspect, reject.” Detecting the bias requires being aware of the problem. From there, leaders should inspect whether a decision—who should be promoted to fill a key role, for example—is based on facts or influenced by bias. Based on that, the leader can then accept or reject a decision. 
First Horizon counteracts bias by conducting multiple panel interviews to determine who will be accepted into its leadership development program or fill senior roles. “Bias operates on individual decision making,” says Daniel. “If you’re working in a group, and you have what I would call real factors—competencies that are used as an assessment tool—the group selection process counteracts and helps offset a lot of the bias.”

Relying on personal networks tends to reward the male-dominated status quo, so a diverse slate of candidates must be considered before filling key positions. “Our search guys [are] told, ‘You will present us a diverse slate, and we will pick the best candidate,’” he says. “It’s not an accident that the last two hires that we made were both female.”

Transparency and measurement are crucial elements in a bank’s battle against unconscious bias. Relying on relationship-building over quantitative measures will ensure that a bank maintains the status quo—a primarily white, male C-suite with a couple of token diversity hires sprinkled in.

KeyCorp shares the progress it’s making on its diversity goals to anyone who visits its website. “We are very frank about our numbers,” even when those numbers make some uncomfortable, says Manigault. Monitoring and measuring helps KeyCorp understand what’s working and what’s not, and meet the diverse talent needs of business line leaders.

“Any time you can track who’s applying for positions and who’s getting them, what kind [and] how much resources people are getting—any time you can track metrics, it helps us find out where our blind spots are,” says Clerkin.

Are women advancing and developing at similar rates to men? Is there a wage gap between genders? These are the types of metrics companies can monitor, in addition to the composition of the leadership team and board, says Streeter. And set specific goals—just like you would for a line of business. “Nothing will happen if you don’t set a goal that is measurable, and then track it and work your way toward it,” she says.

And when performances are evaluated based on quantitative measures, rather than gut instinct or personal relationships, women fare better. And focus on the quality of the performance, not face time or hours spent in the office, says Tschida. “If you tell [women] what the outcome is, and you allow their more natural inclination to structure and discipline in their own right, they can be efficient, and they can hit that outcome in different ways,” she says. “Men would like that, too.”

Focusing on the employee’s outcome, rather than gut instinct, means the organization is advancing its best talent. That’s better for the bank.

Women tend to get stuck in organizations just below the C-suite. KeyCorp’s total workforce was 60 percent female in December 2017, compared to 27 percent for its executive and senior officers, and 31 percent for its board. At the end of 2016, FifthThird’s workforce looked roughly the same, with 61 percent women overall compared to 31 percent of its board, and 23 percent of its executive and senior team. At the end of 2018, First Horizon reported that 30 percent of its executive management committee was female, compared to 60 percent overall. And this is among banks that are actively working to create a more diverse workforce, rather than being content with the status quo.

All things equal, Streeter recommends hiring the diverse candidate. “When candidates are really quite equal, people will use some gut instinct—they will say something like, ‘She’s just not as good a fit as he is,’” says Streeter. “If all things are equal when you look at the qualifications of people, you’ve got to start opting in favor of diversity, if you lack diversity. That’s not giving women preferential treatment, it’s just saying, our corporation needs to have more diverse leadership, that’s one of our goals and to meet that goal, we have to start looking at environments and opportunities to diversify the leadership.”

That could also mean making the table a little bigger to include women. This enabled First Horizon to add more women to its executive management committee. “The enlargement of the committee was to make sure that we had the opportunity for lots of people to have a seat at the table when corporate decision making and policy making” occurred, says Daniel.

As for the lack of women ready to lead? Fifth Third’s Tanner calls that a cop out. “There are a lot of executive women out in the workforce … Go find them, and bring them to your company, and if they’re deeper in your organization, then develop and bring them up,” she says. “We have to quit with the excuses. If we really want to develop a workforce of tomorrow that is going to lead us into our future generations, we have to fix this, and we can’t do it at the rate we’ve been doing it.”