Poll Results: Digital Transformation’s Next Phase

NYDIG-Report.pngJPMorgan Chase & Co., which is the largest U.S. bank by assets, spends $12 billion a year on technology, investing in a vast array of technologies that include machine learning, artificial intelligence and blockchain. The second largest bank, Bank of America Corp., spends roughly $3.5 billion annually on new technology initiatives alone, according to Chairman and CEO Brian Moynihan.

It’s a lot of money — and a level of spending that smaller banks can’t hope to achieve. Executives and directors primarily representing community banks under $10 billion in assets reported a median technology budget of $1.7 million for fiscal year 2021 in Bank Director’s 2021 Technology Survey, with a median increase in spending of 10% compared to the previous year.

Those limitations should have bank leaders thinking strategically about how to allocate those precious dollars. With that in mind, Bank Director’s FinXTech division polled bank executives in January and February 2022 about technology adoption trends, and asked about specific noncore solutions that have had a recent, significant impact toward achieving their goals.

Bankers identified 20 platforms as their favorites when it came to driving that change, ranging from digital lending solutions to data analysis. You can find the companies listed on page 7-8 of the report. To categorize the solutions by type, we relied on input from FinXTech Research Analyst Erika Bailey, who manages Bank Director’s FinXTech Connect platform, a guide to financial technology companies working with U.S. banks.

While the past 18 months found many banks putting digital account opening and lending platforms in place — in response to the digital acceleration brought about by the pandemic — banks shifted plans for the next 12 months to application programming interface (API) platforms, data aggregation and analysis, and workflow automation.

To gain additional perspective on these trends, we talked to the executives of three banks that are actively accelerating their digital journeys. Mascoma Bank, a $2.6 billion mutual in Lebanon, New Hampshire, is in the early stages of implementing an API-enabled, cloud-based core platform that will help the bank customize its product and service offerings. St. Louis-based Midwest BankCentre, with $2.4 billion in assets, leveraged its digital subsidiary to expand its capabilities to all of its customers; it will expand digital account opening to business clients in 2023. And West Reading, Pennsylvania-based Customers Bancorp, with $20 billion in assets, is using data-driven insights to fuel the next phase of its digital transformation.

Click here to access the poll results and learn more about how those banks are moving technology transformation forward in this special report.

Also included is a success checklist, questions that boards and leadership teams could ask to help strengthen their technology strategy.

Bank leaders should start by evaluating their organization’s strengths and how technology can align with strategy, advises Ron Shevlin, chief research officer at Cornerstone Advisors. “Stop thinking about technology adoption, and focus more on … the business opportunity,” he says. “Focus on the business results.”

How to Build a Bank From Scratch

Corey LeBlanc is best known as the man behind the @InkedBanker Twitter handle, inspired by his affection for tattoos. He’s also co-founder, chief operating officer and chief technology officer of Locality Bank, a newly chartered digital bank based in Fort Lauderdale, Florida. In the interview below, which has been edited for length, clarity and flow, he talks about the value of standing out and the process of standing up a de novo digital bank.

BD: How did you become known as the InkedBanker?
CL: A few years ago, Jim Marous, co-publisher of The Financial Brand, told me that I had to get on Twitter. When my wife and I created the profile, we needed something that made sense. I’ve had tattoos since I was 18 – full sleeves on both arms, on my back and chest — so that’s what we picked. It’s turned out to be incredibly important for my career. People remember me. It gives me an edge and helps me stand out in an industry where it’s easy to get lost in the mix.

             Corey LeBlanc, Locality Bank

BD: What’s your vision for Locality Bank?
CL: The best way to think about Locality is as a digital bank that’s focused on the south Florida market. There’s a void left in a community after its locally owned banks are either bought by bigger, out-of-state rivals or grow so much that they no longer pay attention to their legacy markets. Our vision is to fill that void using digital distribution channels.

BD: Was it hard to raise capital?
CL: Not especially. Our CEO, Keith Costello, has been a banker for many years and was able to raise an initial $1.8 million in December 2020 from local investors to get us off the ground. We later went back to that same group to raise the actual capital for the bank, and they committed another $18 million. Altogether, including additional investors, we raised $35 million between October and November of 2021. Because that was more than the $28 million we had committed to raise, we had to go back to the regulators to make adjustments to our business plan, which delayed our opening.

BD: How long did it take to get your charter?
CL: It was about 10 months. We filed our charter application on St. Patrick’s Day of 2021. We received our conditional approvals from the state in mid-September, and then we had our conditional approval from the [Federal Deposit Insurance Corp.] in early November. Our full approval came on Jan. 11, 2022.

BD: What was it like working with the regulators?
CL: You hear bankers say that regulators make everything difficult and stop you from doing what you want to do. But we didn’t find that to be the case. Just the opposite. They served more like partners to us. They worked with us to fine-tune our business plan to better meet the needs of the customers and markets we’re targeting, while still trying to accomplish our original objectives.

BD: What’s your go-to-market strategy?
CL: We’re going to be a lend-first institution. Our primary focus is on the south Florida commercial market — small to medium-sized businesses all the way up to early stage, larger enterprises. We’ll expand as we grow, but we want to be hyper-focused on serving that market. To start out, we’re offering two commercial accounts: a basic commercial checking account and a money market account. Then we’ll expand to providing accounts with more sophisticated capabilities as well as [Interest on Lawyer Trust Accounts] for lawyers. Because of the markets we’re in, those two accounts are absolutely necessary.

BD: As a new bank, how do you ensure that you’re making good loans?
CL: It was a top priority for us to recruit good, trusted bankers who understand that you need to balance the needs of the bank and the needs of the market. The bankers we’ve hired know how to do that. On top of this, if you can get a banker who’s been successful with the tool set that most traditional institutions give them, and then you give them a better set of tools, imagine the experience that you’re creating for those bankers and their customers. You’re empowering them to do something exponentially greater than they could in the past. And by giving them that set of tools, you’ve now inspired and motivated them to push even further and start challenging systems that otherwise they would have never challenged. We see it very much as a virtuous circle.

Improving Bank Culture By Being an Ally

Tuesday, March 8, is International Women’s Day, a global celebration of women’s historical, social, economic, cultural and political achievements.

This day is also a call to action for accelerating gender equality in all aspects of life. The theme for 2022’s day is #breakthebias, to create a world free of bias, stereotypes and discrimination, and that is diverse, equitable and inclusive.

I feel tremendous pride when I see my fellow women leaders succeed, whether they lead a country or a company. I also feel tremendous pride at the steps Securian Financial has taken to draw on the diverse talents and creativity of our team to maintain our workforce and our commitments to our policyholders. One of the ways we’ve done that is through the gender equity work of our associate resource group, which seeks to foster an environment that supports, educates and empowers all women at our company and in the broader community.

Creating gender equitable cultures can result in stronger corporate reputation, earnings and a greater ability to attract and retain talent. A diverse and equitable workforce can increase creativity, increase collaboration and provide better job satisfaction for employees. But the right policies alone cannot shift culture; it’s critical that employees become part of the cause. That’s where being an ally comes in.

What does it mean to be an ally?
I get this question a lot. For too long, gender equity issues were seen as a women’s problem to solve. Yet, these issues are actually leadership issues for all to address and conquer. This involves action, advocacy and the desire to create change. It is an understanding of how power operates, and who has it. It is learning and appreciating the history and issues that women face in the workplace.

Being an ally means creating an environment that nurtures, builds community and demonstrates paths to successful career advancement. Here are some ways executives and employees at any company can practice allyship:

  • In the Moment: Speaking up in the moment when sexist comments are made is a great way to reaffirm that sexism won’t be tolerated in your organization.
  • Listen: Be a sounding board. Avoid offering your perspective unless asked, and resist the urge to fix the situation.
  • Ask: Don’t hesitate to ask female colleagues how you can be an ally. Ask about specific issues or changes that the workplace or management can make, and be willing to take responsibility for change.
  • Feedback: Provide specific and quality feedback to women for developmental goals.
  • Mentor and Sponsor Women: Commit the time and energy to mentor women in the company, and connect them with opportunities to network and showcase their talents.
  • Engage: Engage in women’s initiatives and events. Be present and be willing to be part of the conversation.

In addition to becoming an ally, executives can initiate a review of the following through a gender equity lens:

  • Job descriptions.
  • Marketing materials, including gender-inclusive imagery.
  • The types of meetings you are having — even conferences.

In today’s challenging environment of hiring and retention, an organization’s commitment to gender equity can make a substantial difference. While we regularly celebrate women’s milestones in the workplace, we still look to give women equal opportunities to exist and succeed in the workplace.

Having equal opportunities strengthens communities and the industry. With diversity of thought and background, as well as gender, we can find a well of strength in times of change and transformation.

The views expressed here are Jennifer Ortale’s own and do not necessarily represent those of Securian Financial.

Building Optimism in Times of Uncertainty

It is no secret that the past few years have lacked certainty or stability. It only takes a few seconds of searching the internet, watching the news or looking at social media to be reminded of some aspect of doom and gloom going on in the world. It can be easy for us to get focused on the negative, and it certainly does not help when headlines highlight this angle.

As a manager or leader within your organization, it has become increasingly important to home in on your abilities to find and bring optimism to your culture and team. Optimism is hopefulness and confidence about the future or the successful outcome of something.

For some people, this outlook may come more naturally; for many of us, this will take active effort.

“Some people are optimistic by nature, but many of us learn optimism as well. Anyone can learn to be optimistic. The trick is to find purpose in work and life,” says Dr. Leah Weiss, a professor at the Stanford Graduate School of Business who specializing in mindfulness in the workplace and was quoted in an NBC News article about optimism.

With the New Year upon us, here are seven steps that bank executives and directors can take to proactively move to a more-optimistic orientation in 2022.

  1. Reflect on 2021 and write down some things that you are grateful for. Try not to let your immediate thoughts or mood of the day drive your reflections.
  2. Evaluate who you spend your time with. Plan to spend more time around people that you consider positive.
  3. Communicate goals and what success looks like for your organization this year.
  4. Create a plan to celebrate the small wins that you will encounter in the year ahead. It will be easier to celebrate personally and with your team if you have a tentative plan ahead of time.
  5. Take time to acknowledge small things you appreciate about your employees and coworkers. If you are in a remote environment this may just be a quick text, team’s message or email.
  6. Everyone had their own version of 2021, and giving them an opportunity and outlet to express their experience and decompress could create more space for being optimistic about the future.
  7. Watch less news and read fewer headlines.

We may not know what this next year will bring exactly but certainly there will be a mix of good and bad to come. “Positive thinking does not mean that you ignore life’s stressors. You just approach hardship in a more productive way,” says Kimberly Hershenson, a licensed master social worker, in the same article.

With some small steps of proactiveness, hopefully we can help shift our own mindset and those around us to identify, appreciate and rally around the positive. If we can do this, we can inspire more unity and alignment within our organizations, drive more loyalty from our teams and in turn produce more positive results for our organizations.

Banks Enter a New Era of Corporate Morality

Are we entering a new era of morality in banking?

Heavily regulated at the state and federal level, banks have always been subjected to greater scrutiny than most other companies and are expected to pursue fair and ethical business practices — mandates that have been codified in laws such as the Community Reinvestment Act and various fair lending statutes.

The industry has always had a more expansive stakeholder perspective where shareholders are just one member of a broad constituency that also includes customers and communities.

Now a growing number of banks are taking ethical behavior one step further through voluntary adoption of formal environmental, social and governance (ESG) programs that target objectives well beyond simply making money for their owners. Issues that typically fall within an ESG framework include climate change, waste and pollution, employee relations, racial equity, executive compensation and board diversity.

“It’s a holistic approach that asks, ‘What is it that our stakeholders are looking for and how can we – through the values of our organization – deliver on that,” says Brandon Koeser, a financial services senior analyst at the consulting firm RSM.

Koeser spoke to Bank Director Editor-at-Large Jack Milligan in advance of a Sunday breakout session at Bank Director’s Acquire or Be Acquired Conference. The conference runs Jan. 30 to Feb. 1, 2022, at the JW Marriott Desert Ridge Resort and Spa in Phoenix.

The pressure to focus more intently on various ESG issues is coming from various quarters. Some institutional investors have already put pressure on very large banks to adopt formal programs and to document their activities. Koeser says many younger employees “want to see a lot more alignment with their beliefs and interests.” And consumers and even borrowers are “beginning to ask questions … of their banking partners [about] what they’re doing to promote social responsibility or healthy environmental practices,” he says.

Koeser recalls having a conversation last year with the senior executives of a $1 billion privately held bank who said one of their large borrowers “came to them and asked what they were doing to promote sustainable business practices. This organization was all about sustainability and being environmentally conscious and it wanted to make sure that its key partners shared those same values.”

Although the federal banking regulators have yet to weigh in with a specific set of ESG requirements, that could change under the more socially progressive administration of President Joe Biden. “One thing the regulators are trying to figure out is when a [bank] takes an ESG strategy and publicizes it, how do they ensure that there’s comparability so that investors and other stakeholders are able to make the appropriate decision based on what they’re reading,” he says.

There are currently several key vacancies at the bank regulatory agencies. Biden has the opportunity to appoint a new Comptroller of the Currency, a new chairman at Federal Deposit Insurance Corp. and a new vice chair for supervision at the Federal Reserve Board. “There’s a unique opportunity for some new [ESG] policy to be set,” says Koeser. “I wouldn’t be surprised if we see in the next two to three years, some formality around that.”

Koeser says he does sometimes encounter resistance to an ESG agenda from some banks that don’t see the value, particularly the environmental piece. “A lot of banks will just kind of say, ‘Well, I’m not a consumer products company. I don’t have a manufacturing division. I’m not in the transportation business. What is the environmental component to me?’” he says. But in his discussions with senior executive and directors, Koeser tries to focus on the broad theme of ESG and not just one letter in the acronym. “That brings down the level of skepticism and allows the opportunity to engage in discussions around the totality of this shift to an ESG focus,” he says. “I haven’t been run out of a boardroom talking about ESG.”

Koeser believes there is a systemic process that banks can use to get started on an ESG program. The first step is to identify a champion who will lead the effort. Next, it’s important to research what is happening in the banking industry and with your banking peers and competitors. Public company filings, media organizations such as Bank Director magazine and company websites are all good places to look. “There’s a wealth of information out there to start researching and understanding what’s happening around us,” Koeser says.

A third step in the formation process is education. “The [program] champion should start presenting to the board on what they’re finding,” Koeser says. Then comes a self-assessment where the leadership team and board compare the bank’s current state in regards to ESG to the industry and other institutions it competes with. The final step is to begin formulating an ESG strategy and building out a program.

Koeser believes that many banks are probably closer to having the building blocks of an effective ESG program than they think. “It’s really just a matter of time before ESG will become something that you’ll need to focus on,” he says. “And if you’re already promoting a lot of really good things on your website, like donating to local charities, volunteering and supporting your communities, there’s a way to formalize that and begin this process sooner rather than later.”

Do Banks Pay Women and Minorities Less?

“The time is always right to do right,” Rev. Martin Luther King Jr.

Among the many attributes of community banks is that they tend to focus on creating great places to work. They contribute to local organizations and encourage staff to stay active in their communities. They often offer regular work hours. But, when it comes to pay equity, they have work to do, according to Christie Summervill, the CEO of BalancedComp.

Summervill, who has 21 years of experience consulting with community banks on how much to pay their staffs, has compiled data recently from 300 banks and credit unions to see what disparities existed between women and men, and between ethnic and racial minorities and non-minorities.

What she found surprised her. With some exceptions, banks tend to pay female employees who are salaried, which means they are classified as exempt employees, less than male salaried employees, and salaried minorities less than non-minorities. When they were paid less, it ranged from about 2.8 to 4.4 percentage points depending on the asset class; it was 2.4 to 4.5 percentage points for minorities.

Summervill presented BalancedComp’s findings at a Bank Director Compensation & Talent Conference in November in Dallas, but did not divulge sample sizes for each asset class.

Banks Tend to Pay Salaried Women Less Than Men

Asset size Average Male Compa Ratio Average Female Compa Ratio
$100M to $200M 86.2% 85.9%
$200M to $400M 100.6% 99.2%
$400M to $600M 101.2% 97.2%
$600M to $1B 100.7% 96.3%
$1B to $2B 103.5% 99.5%
$2B to $4B 99.61% 98.3%
$4B to $8B 99% 96.2%
$8B to $12B 103.1% 99.8%

 

Banks Tend to Pay Salaried Minorities Less Than Non-Minorities

Asset size Average Minority Compa Ratio Average Non-Minority Compa Ratio
$100M to $200M N/A N/A
$200M to $400M N/A 99.5%
$400M to $600M 98.1% 100.7%
$600M to $1B 97.4% 101.9%
$1B to $2B 103.4% 103.5%
$2B to $4B 94.7% 99.3%
$8B to $12B 97% 99.4%

Source: BalancedComp. Includes data on nearly 300 BalancedComp clients across 50 states. Data pulled in August 2021. The Compa ratio is the percentage of the market rate. The system is bridged to client payroll systems without compromising individual privacy.

It was a different story for hourly staff, classified as non-exempt employees, where few pay disparities exist. Summervill thinks banks struggle to find hourly staff these days, and so they may pay more attention to competitive pay levels for hourly workers.

She thinks pay inequities exist among salaried workers because of a lack of discipline in salary management. For instance, community banks may set salaries based on what people said they expected, rather than dissecting the data. “It doesn’t come from an ugly heart,’’ she says. “Community banks are so employee-centric overall. It’s a lack of discipline.”

The Equal Pay Act of 1963 requires that employers pay men and women equal pay for equal work, and some 42 states have expanded the act with various laws of their own, raising potential liability issues for banks, according to the compensation firm Aon. States with the strictest laws include California, Colorado, Louisiana, Massachusetts, New Jersey, New York, Oregon and Pennsylvania.

Gayle Appelbaum, a partner and compensation consultant for Aon, says banks tend to be more interested in analyzing pay equity when they have operations in states that mandate pay equity. She has performed pay equity studies for bank clients and has found there has been progress in gender pay gap disparity in recent years. On average, she says the gender pay differential falls in the range of 5% to 8% across the banking industry, when using advanced methodologies to sort, analyze and compare employee census data.

Because of the liability in such studies, many banks involve their general counsel or outside attorneys before delving into such reports in order to ensure attorney-client privilege for their findings. “There are still some disparities, but the data shows that a lot of improvements have been made [in closing the gender pay gap],” says Appelbaum.

Banks striving to diversify their employee base should pay careful attention to pay equity, she says. When disparities exist, they should be examined to make sure they are within a reasonable range and based on established workplace criteria, such as education levels, performance or tenure, and not based on bias or unfair pay practices.

Summervill says she’s seen banks come up with strange reasons for paying women less, though. For example, one bank asked a female employee to avoid certification for a certain position within the bank so she could perform tasks that a certified employee was prohibited from doing. She complied but was paid $36,000 less annually than a certified male employee who did the job at the same bank — all for doing the bank a favor.

Summervill suggests bank boards ask human resources to conduct pay equity studies because human resource departments may be reluctant to initiate such studies on their own, since the results can be contentious.

BalancedComp’s data on CEOs and executive pay was mixed. Banks tend not to have many female or minority CEOs. For the few community banks that had female CEOs, they tended to make more than male CEOs in their asset classes, possibly because there are so few of them and competition for female CEOs is high. In five of the eight bank asset groups, female executives were also paid equal or more than male executives. Only two groups out of BalancedComp’s eight asset ranges had a minority CEO, and four out of the seven asset groups had no minority executives.

Summervill says banks should correct any inequities right away. After all, it’s the law. “The conclusion is that pay disparity exists,” Summervill says. “It’s not intentional but it’s absolutely there.”

Building a ‘Truly Great Place to Work and Bank’

FS Bancorp’s cultural revolution kicked off about a decade ago. It’s a journey that’s still ongoing for the holding company of 1st Security Bank of Washington, according to CEO Joseph Adams.

The predecessor of Mountlake Terrace, Washington-based FS Bancorp was a credit union from its founding in 1936 until 2004, when it converted to a mutual state savings bank. In 2012, upon converting from a mutual to stock ownership structure, Adams and his team began to reconsider the bank’s business lines and culture.

“We had to figure out what we wanted to be when we grew up,” says Adams. “We had difficulty attracting top talent in our market.” The bank posted a 0.5% return on assets as of December 2011, according to S&P’s Capital IQ database.

But that has changed. “If you look at the financials of this organization, for the last 10 years, you will see a hockey stick,” says Adams. “You will just see it growing and growing.” FS Bancorp reported a return on assets of 2.1% at the end of 2020. Overall performance drove FS Bancorp to place No. 1 among the Best Community Banks in the 2022 RankingBanking study, based on a variety of metrics including profitability, growth and total shareholder return, which totaled 125% over five years (2015 to 2020). Executive leadership, board oversight, innovation and growth were also examined, with FS Bancorp topping the Best Leadership Teams subcategory.

The $2.2 billion bank focuses on five areas: deposits, home lending, indirect consumer lending, commercial & industrial (C&I) and commercial real estate. But its business lines aren’t the sole driver of the bank’s success. Adams points to a cultural shift that started around a decade ago, when Adams promoted Vickie Jarman — previously part of the consumer lending group — to lead a team focused on transforming the bank. They proposed a new set of core values, along with a mission and vision for the company. It’s pretty simple: FS Bancorp wanted to create a “truly great place to work and bank,” says Adams. “We believe if you build a great place to work, it will be a great place to bank. We intentionally put those words in that order.”

What’s developed is a culture that values collaboration and humility, according to three FS Bancorp executives I spoke with in October: Adams, Chief Financial Officer Matt Mullet and Jarman, the bank’s chief human resources officer. Self promoters often don’t feel at home there, explains Mullet.

FS Bancorp wants “smart, driven, nice” people, says Adams. “Jerks” need not apply. “We all have to work someplace. Why not work someplace where we have each other’s back, where you wake up every morning excited to go see the people you get to work with?” he says. Getting all three qualities isn’t easy, so the bank makes prospective hires go through hoops to join the organization — the more senior, the more hoops. “Our head of retail, she joined us about four years ago, and she had 16 interviews,” says Adams. “But she kept coming. And she’s here, she does a great job.”

By all appearances, the lengthy hiring process isn’t keeping FS Bancorp from adding the talent it needs to drive growth. The company had 78 employees when its transformation began, says Jarman; now it employs more than 500.

Building a strong culture requires constant work and attention. FS Bancorp has worked with a corporate coach for more than a decade; Adams is also an avid reader of books on leadership and organizational development, including Jim Collins’ “Good to Great” and Simon Sinek’s “Leaders Eat Last.” Combined, the books shine a light on leaders that put their organizations ahead of their egos. Adams wants to adapt those concepts to FS Bancorp, and he’s working with their corporate coach to do it. That will include building a training process to help FS further develop its leaders so they get the culture, too. “It’ll probably take us a year or two, as we move into the future, to get it to a point where we believe we’ve really nailed it,” says Adams.

And they’re putting practices in place that take care of employees, including raising the starting wage to $20 an hour in July — in line with rates paid by big banks such as Bank of America Corp. and First Republic Bank. It was Mullet’s idea, says Adams. “He was concerned — with how expensive things are in the Seattle area — that we have a livable wage,” says Adams.

Adams was an attorney before becoming a banker but says he’s truly passionate about organizational development — getting the right people in the right positions to excel. “We work really hard to get people in roles that play to their strengths, not their weaknesses,” he says. “If you get somebody in a role that plays to their strengths, they do wake up every morning excited to do that role.”

That passion for people comes through in how Adams leads the organization, according to Jarman. “Joe isn’t someone who comes in and says, ‘OK, what do you have on your plate today?’ … He says, ‘Hey, how can I help you? What are you working on?’ It’s from a different angle. It’s not at you. It’s with you, and it’s supportive.”

Playing to different strengths, and creating a collaborative environment where people are encouraged to think differently, builds a stronger bank,” Jarman continues. “We’ve created a space where people do feel safe saying, ‘I don’t agree with you’ or, ‘Can we try it this way?’” she says. Providing employees with the culture to foster those types of questions builds future leaders, and it comes from the top. “That’s what Joe does,” says Jarman. “He gives us the opportunity to grow.”

FS Bancorp CEO Joseph Adams will be part of a panel discussion at Bank Director’s Acquire or Be Acquired event in Phoenix, Jan. 30 – Feb. 1, 2022. Click here to access the agenda or learn more about the conference.

Rethinking the Conversation About Diversity and Inclusion

While financial institutions adjust to the new and challenging operating environment, they are also grappling with potentially fraught social issues, including how to increase and incorporate diversity and inclusion (D&I) efforts.

To learn how one of the industry’s most diverse leadership teams thinks about D&I ahead of Bank Director’s 2021 Bank Compensation & Talent Conference in Dallas, Texas, I spoke with Greg Cunningham, senior vice president and chief diversity officer at U.S. Bancorp. Cunningham shared how the bank, which has $567.5 billion in assets, practices authentic D&I inside the bank and how other banks can think about their own efforts in the context of broader social trends. The transcript that follows has been edited for brevity, clarity and flow.

BD: How does U.S. Bancorp practice diversity and inclusion?
GC: We’re headquartered in Minneapolis. George Floyd was murdered less than three miles from where our offices are. In February [2021], we decided to change the systems inside our organization. It was important for us to come to terms with how complicit the financial services industry has been in creating many of the disparities that we’re all concerned about and trying to solve for. Step one for us was acknowledging the role our industry played. Step two was saying, “What’s our role individually and how can we incorporate our core competencies?”

Our focus is squarely on “How do we stand up, across the entire bank, to help close the racial wealth gap?” White households have eight times the wealth that Black households have in this country. That’s not a Black problem, that’s an American problem. It’s a drag on the entire U.S. economy and it impacts every single American household in terms of household income.

[Another area of focus] is on our employees. We have the Rooney Rule in our organization: For every open position in our company, we have at least one woman and/or personal color candidate interview. We have scorecards for our managing committee members that we share with the board on a quarterly basis. We tie performance conversations to their diversity, equity and inclusion performance, just as we can do with financial performance. Accountability is everything. Without accountability, you won’t move the organization at all.

BD: Have these efforts been successful? And what does the bank have left to do?
GC: I think every organization struggles with what we call the broken rung: As you move up in an organization, the representation of women and people of color falls off. The broken rung at the executive level, moving into senior executive level, has been our focus.

We have to continue to do better. But the important point here is: This work is not about fixing women and people of color. They’re not broken. Too many times, diversity efforts focus on training women and people of color. No. We have to train managers to be more and better inclusive leaders. Leading inclusively is on everybody’s performance review. It’s part of the leadership expectation; if you don’t do this well, then you won’t continue to rise in the organization, because it’s on your performance review.

BD: How does US Bancorp keep its D&I efforts authentic and try to avoid tokenisms for your employees with diverse identities?
GC: I think the conversation in the future will be less about inclusion; the real aspiration is belonging. Belonging is ensuring that everybody has a place in the environment and that the culture supports everybody’s opportunity to be successful. Belonging is the notion that we co-create the environment together, that our voices are equal and that we’re creating the condition where everybody feels a sense of psychological safety, where they can speak up and can challenge the status quo.

BD: Banks may struggle to envision how they can increase diversity and inclusion if they haven’t started, or if they have started but don’t have someone in a role like yours. What advice would you share to others as they start or continue to evolve?
GC: My advice would be number one, understand your “why.” What is your real commitment to it? If you’re only doing it to check a box, to meet some sort of compliance standard, then I think you’re doing it for all the wrong reasons. You have to understand your why before you go down this path, because once you define your why, it will also help you understand this work.

You have to understand this takes long term commitment. The headlines come and go; you still have to do this work. You’ve got to have some stamina and real commitment and be willing to take an honest reflection of where you are in order to improve.

Wait Wait, Don’t Quit

The Covid-19 infection rate across much of the country is in decline, but banks and other employers trying to bring workers back to the office are dealing with another problem: an acute labor shortage.

Last month acquired the nickname #striketober, as the U.S. reached a record high percentage of people quitting their jobs. The latest data from the U.S. Bureau of Labor Statistics found that 4.7 million people, or 2.9% of all employees, quit their jobs in August. Nonfarm employment as of October was 4.2 million shy of what it was pre-pandemic. Wages are climbing, and banks feel the pressure from companies like Bank of America Corp., which announced that it will pay workers at least $25 an hour by 2025.

The ability to work-from-home in such an environment has suddenly become a retention tool — no longer simply a response to the pandemic. As I head to Bank Director’s Bank Compensation & Talent Conference at the Four Seasons Resort and Club in Dallas Nov. 8 to 10, where close to 200 people will discuss those and other issues, it’s clear that flexibility is becoming the new 401(k).

At $1.6 billion State Bank of Cross Plains, in a suburb of Madison, Wisconsin, allowing non-branch staff to work from home a few days per week has become an important benefit, said Chief Financial Officer Sue Loken at a recent Bank Director conference in Chicago.

In Buffalo, New York, at $152 billion M&T Bank Corp., employees will come back to the office three days a week starting in January 2022. Some already were coming into the office voluntarily or if their work required it.

Hybrid work looks like a better alternative to most banks than remote work. An unscientific audience poll at Bank Director’s recent Bank Audit and Risk Committees Conference in Chicago found that fewer than 5% of 57 respondents thought that more than half their employees would work remotely in the future. The most popular answer was that fewer than a quarter will work remotely, in line with Bank Director’s 2021 Risk Survey conducted at the beginning of the year.

That fits with what Paul Ward, chief risk officer at $15 billion Community Bank System in DeWitt, New York, had to say at the conference. Most employees are back at the office full-time, though a few still are working remotely.

Community Bank’s senior executives believe those in-person conversations are critical to building culture at the bank. Executives at M&T Bank also felt that culture is best cultivated in person, not via video conferencing. Michele Trolli, M&T’s head of corporate operations and enterprise initiatives, told The Buffalo News last October that M&T was “living off an annuity” acquired pre-pandemic by being together and knowing each other. “And that annuity, at some point, that runs out,” she said.

Banking’s Vaccine Dilemma

David Findlay has witnessed several crises over his 37-year banking career, but he says the Covid-19 pandemic has been the most challenging — one that continues to redefine what it means to be a good employer.

“We took a very protective stance of our entire workforce,” says Findlay, the CEO of $6 billion Lakeland Financial Corp., based in Warsaw, Indiana. Lakeland’s subsidiary, Lake City Bank, has followed Centers for Disease Control and Prevention and health department guidance to sanitize branches, and closed lobbies as needed. Around one-third of employees worked remotely.

These early decisions were easy, Findlay adds. Encouraging employees to get vaccinated against Covid-19 has resulted in a new dilemma, due to “divisions between those [who] believe in the efficacy of the vaccine,” he says, “and those [who] don’t.”

Righting the economic ship has long hinged on successfully defeating the coronavirus through the development and broad adoption of one or — as came to pass — multiple vaccines. “Ultimately, the economic recovery depends on success in getting the pandemic under control, and vaccinations are critical to our ability to accomplish that,” Treasury Secretary Janet Yellen told the Senate Banking Committee in March.

Like all businesses, vaccinations allow banks to safely reopen branches and repatriate staff into offices. All three of the Covid-19 vaccines available in the U.S. are currently authorized for emergency use by the Federal Drug Administration; some Americans say they won’t get vaccinated until they receive full approval by the FDA.

In early May, Lakeland rolled out an organization-wide vaccination program, updating employees about Covid-19 cases, quarantines and vaccination efforts for the organization. Employees have had access to an on-site vaccination clinic, and the bank pays a $100 bonus to each vaccinated employee, with another $100 to the nonprofit of their choice.

The program was retroactive, so the roughly 40% of employees who were already fully vaccinated were rewarded, too. As of June 10, half of the bank’s employees reported that they had been vaccinated, which compares favorably to Indiana’s population, at 39%, and 30% for Lakeland’s home base in Kosciusko County.

We have made it clear that this is a personal choice and that we must all respect each other, regardless of [our] position on the vaccine,” says Findlay. “It has been a challenging 17 months, and we must all stick together so our culture can survive the pandemic.”

Carrots, not sticks, also drive the vaccination program at Pinnacle Financial Partners. “This is a personal decision, it’s a medical decision, so we don’t want to cross that line,” says Sarae Janes Lewis, director of associate and client experience at the $35 billion bank.

Pinnacle started communicating the benefits of the vaccine in December 2020 — around the time that the FDA first approved emergency use for the Pfizer and Moderna vaccines. It started its incentive program in March, after the vaccine became more broadly available. Employees get time off to get vaccinated — a half day per shot — and receive a $250 gift card to spend as they like. “We wanted to make the amount enough to incentivize people,” says Lewis, “but we didn’t want it to be so much that it felt like someone who had not made that decision yet would feel overly pressured.” Pinnacle includes a thank-you note with each gift card.

And they’re promoting the upsides of getting vaccinated. Vaccinated employees aren’t required to wear a mask, for example; those who haven’t yet gotten the vaccine are asked to mask up. Pinnacle isn’t policing its employees’ mask use.

When Lewis and I spoke, 64% of Pinnacle’s associates reported to the bank that they were fully vaccinated against Covid-19. That’s well ahead of the bank’s hometown of Nashville, at 44%, and home state of Tennessee, where roughly one-third of eligible individuals are fully vaccinated. An employee survey revealed that many of Pinnacle’s employees who are hesitant may reconsider once one or more of the vaccines receive full FDA approval. When that happens, Lewis says that the bank may ramp up communications again, and incentives will remain in place.

This high vaccination rate — and understanding the vaccination status of its employees — has helped Pinnacle reopen locations and get a little closer to normal operations. “If there does happen to be an exposure, we’re not having to close offices anymore,” Lewis says. “It’s been pretty amazing to have that stability.”

Lake City and Pinnacle both boast above-average vaccination rates compared to their communities, but they’re still below President Joe Biden’s goal for 70% of American adults to be partially or fully vaccinated by the Fourth of July. So, should banks help close this gap by requiring that employees get vaccinated?

Companies can do that, according to guidance from the Equal Employment Opportunity Commission that was updated in late May.

Adam Maier, a partner at the law firm Stinson LLP, believes banks like Pinnacle and Lake City, that focus on education and modest incentives, have the right approach. The EEOC guidance is “fraught with uncertainties,” he adds. “It’s such a tightrope to be walking to mandate vaccines and also make sure you’re not doing it on a discriminatory basis, or with a discriminatory outcome.” Companies still must comply with the Americans with Disabilities Act and Title VII of the Civil Rights Act, which prohibits discrimination based on race, color, religion, gender, pregnancy or national origin. Incentives also can’t be coercive.

Both Lake City and Pinnacle emphasize their respect for employee choice, and that appears to be a consistent theme for the industry. Bank of America Corp. CEO Brian Moynihan was asked in the company’s April shareholder call if the board would “commit to not coercing our employees into getting the COVID vaccine.” Moynihan responded that the bank emphasized communication and education — and the right for each employee to come to their own decision.

The megabank asks employees to update their vaccination status through an online portal. Requesting an employee’s vaccine status — confidentially — is clearly permitted by the guidance, Maier confirms.

“Whatever your approach is, just try to be respectful,” advises Maier. “Be reasonable and rational, and don’t get caught up in any individual employee’s decision.”