Pub. 3 2014 Issue 3

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 8 THE CULTURE CYCLE By Jeff Judy I N MANY, PERHAPS MOST, BANKS, BELIEF that “culture” is an important factor in the institution’s success waxes and wanes with economic conditions ... or, more accurately, varies counter-cyclically with those conditions. By “culture,” I’m talking about how the strategies of an institution’s leadership are reflected in actual practices by employees at the front lines. Do different levels of the organization share common views of what employees are supposed to be doing? Faced with a decision involving a customer, a business decision, an ethical dilemma, or a regulatory issue, do employees in different locations, and at different levels on the org chart, generally come up with the same answers? Do they have the same vision of how things work, of what is important, of which principles are sacred, of the goals the organization is pursuing? When times are good, management at many a bank regards questions like these as, well, fluff, touchy-feely stuff that does not really factor into the business. Get yourself a nice little recession, however, and skeptics become believers. And it really hits home when bank leadership tries to respond to changing conditions, when they keenly feel the need to be nimble, to implement changes in strategies and practices as quickly and thoroughly as possible. This last meltdown has been so severe that the most sluggish responders are already gone. When the recession hit, the institutions where communication was frequent, where common vision was valued, where top- level strategies and front-line execution were closely matched, were able to adopt new practices much more quickly. When there are few gaps between the vision of the leadership and the way that vision plays out in daily front-line practices, you have what I call a “tight” culture. Everyone in the boat is rowing to the same stroke count, you might say, so that stopping, speeding up, or changing direction are all easily done. That kind of unified culture is at the same time resistant to, and amenable to, change. On the one hand, there’s a certain inertia there: the company doesn’t flit from one faddish notion to the next. But when change is truly required, or when it simply offers a significant competitive advantage, it is easier for a group that already knows how to work together to change direction, to carry out new strategies. Where culture is neglected, all the staff listen to their own internal stroke counts. Change is difficult to effect, opportunities slip away, and hazards cannot be avoided. Culture is particularly important when a situation cannot be resolved by a hard-and-fast rule, a line in a procedure manual, or the outcome of a software algorithm. When there is a judgment call — make the loan or not when the score is right on the threshold, take action when a customer’s financial health is worrisome, lean in favor of being a good corporate citizen versus making a quick profit for shareholders — that’s when we really see whether everyone shares the same vision, the same standards, the same values, the same understanding of what it means to work for the bank. When everyone makes pretty similar judgment calls, when everyone has the same view of what is supposed to happen, it means that the bank’s leadership is truly successful not only in sharing their goals and standards and strategies, but in holding all levels and units within the bank accountable for acting upon that shared vision. It means they have worked hard not only to communicate how things should be done, but have paid attention to what really happens, and made corrections where they are needed. And make no mistake, judgment calls are where you gain your competitive advantage. After all, let’s face it: your credit scoring system or credit analysis software produces pretty much the same answers as every other bank’s. Your product lines are not all that different, your room to maneuver in pricing is limited. Making better decisions when the decisions are a little harder will determine whether you are a market leader or struggling just to stay in the game.